Kế toán, kiểm toán - Chapter 10: Property, plant, and equipment: accounting model basicsappendix a & b

CHAPTER 10:PROPERTY, PLANT, AND EQUIPMENT: ACCOUNTING MODEL BASICSAppendix A & BChapter 10: Property, Plant, and Equipment: Accounting Model BasicsAfter studying Appendix 10A , you should be able to:Calculate the amount of borrowing costs to capitalize the qualifying assets.After studying Appendix 10B , you should be able to:10. Understand and apply the revaluation model using the proportionate method.3Appendix 10A – Capitalization of Borrowing CostsBorrowing costs are made up of interest and related costs that company incurs related to the borrowing of funds. The cost of equity financing is specifically excludedFour issues need to be considered in determining the amount of borrowing costs to be capitalized and how to report them:Which assets qualify?What is the capitalization period?What are the avoidable borrowing costs – the amount eligible to capitalize? What disclosures are needed? 4Appendix 10A – Capitalization of Borrowing CostsQualifying AssetsMust require substantial time to get ready for their intended use or saleMay include inventories, items of property, plant or equipment; investment properties; or intangible assetsCapitalizeBorrowing costs for qualifying assets measured at fair value and inventories that are produced in large quantities on a repetitive basis may be capitalizedDo Not CapitalizeAssets that are already in use or ready for their intended use when acquired; those produced over a short period of time and assets not undergoing activities necessary to get them ready for use, such as land that is not being developed and assets that are not being used because of obsolescence5Appendix 10A – Capitalization of Borrowing CostsCapitalization PeriodBegins on the commencement date, which is when all three of the following conditions are met:Expenditures for the asset have been madeActivities that are necessary to get the asset ready for tis intended use or sale are in progress, including necessary pre-construction administrative and technical workBorrowing costs are being incurred6Appendix 10A – Capitalization of Borrowing CostsAvoidable Borrowing CostsTo qualify for capitalization, the costs must be directly attributable to a projectMust be avoidable borrowing costsSteps taken to calculate the borrowing costs to capitalize:Step 1: Determine the expenditures on the qualifying assetStep 2: Determine the avoidable borrowing costs on the asset-specific debtStep 3: Determine the avoidable borrowing costs on the non-asset-specific debtStep 4: Determine the borrowing costs to capitalizeOnly two disclosure are required for borrowing costs: the amount capitalized and the capitalization rate7Appendix 10B – Revaluation: The Proportionate Method8When using the proportionate method, a revaluation is not necessarily required at each reporting dateShould be carried out often enough to ensure the carrying amount reported does not become materially different from the fair valueAppendix 10B – Revaluation: The Proportionate Method9 Before Revaluation Proportionate AmtBuildings $100,000 x 90/88 $102,273Accumulated Depreciation 12,000 x 90/88 12,273Carrying Amount $ 88,000 x 90/88 $ 90,000The entry to record:Buildings 2,273 Accumulated Depreciation – Buildings 273 Revaluation Surplus - OCI 2,000Appendix 10B – Revaluation: The Proportionate Method10 Before Revaluation Proportionate AmtBuildings $102,273 x 75/77.727 $ 98,685Accumulated Depreciation 24,546 x 75/77.727 23,685Carrying Amount $ 77,727 x 75/77.727 $ 75,000The entry to record:Accumulated Depreciation – Buildings 2,273Revaluation Surplus (OCI) 273Revaluation Gain or Loss 727 Buildings 3,588