Acquisition And Disposition Of Ppe

1922 Words Nov 28th, 2015 8 Pages
Chapter 10 – Acquisition & Disposition of PPE

Historical cost is the usual basis for valuation when acquiring PPE. The components of cost are cost of the land (which is not depreciated). Cost of land includes the purchase price, closing costs, preparation of the site, and back taxes. Any improvements on the land such as landscaping and installing utilities can be capitalized and depreciated separately, as they have limited useful lives.

Cost of purchasing existing buildings includes purchase price, closing costs, and repairs and renovations, and the initial inspections that need to be done on the building. If the building is new and being constructed, there is a separate process for self-constructed assets.

Cost of equipment includes the purchase price, installation, delivery, and testing/inspections.

Self-constructed assets are made up of the materials needed for construction, any overhead needed, and potentially interest allocation.

Interest during construction of any PPE asset funded or built by the company can potentially have a portion capitalized and depreciated. Interest cannot be capitalized for inventory. The amount of interest that can be capitalized is found by following these steps:
• The capitalization window needs to be determined. This is the length of the beginning of the construction to when the construction is completed.
• Weighted-average accumulated expenditures (AAE) need to be found. This is the maximum amount of interest that can be…

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