1、,C H A P T E R 10,ACQUISITION AND DISPOSITION OF PROPERTY, PLANT, AND EQUIPMENT,Intermediate Accounting IFRS Edition Kieso, Weygandt, and Warfield,Describe property, plant, and equipment. Identify the costs to include in initial valuation of property, plant, and equipment. Describe the accounting pr

2、oblems associated with self-constructed assets. Describe the accounting problems associated with interest capitalization. Understand accounting issues related to acquiring and valuing plant assets. Describe the accounting treatment for costs subsequent to acquisition. Describe the accounting treatme

3、nt for the disposal of property, plant, and equipment.,Learning Objectives,Acquisition,Acquisition costs: land, buildings, equipment Self-constructed assets Interest costs Observations,Valuation,Cost Subsequent to Acquisition,Dispositions,Cash discounts Deferred contracts Lump-sum purchases Stock is

4、suance Non-monetary exchanges Government grants,Sale Involuntary conversion,Additions Improvements and replacements Rearrangement and reorganization Repairs Summary,Acquisition and Disposition of Property, Plant, and Equipment,“Used in operations” and not for resale. Long-term in nature and usually

5、depreciated. Possess physical substance.,Property, plant, and equipment is defined as tangible assets that are held for use in production or supply of goods and services, for rentals to others, or for administrative purposes; they are expected to be used during more than one period.,Property, Plant,

6、 and Equipment,LO 1 Describe property, plant, and equipment.,Includes: Land, Building structures (offices, factories, warehouses), and Equipment (machinery, furniture, tools).,Historical cost measures the cash or cash equivalent price of obtaining the asset and bringing it to the location and condit

7、ion necessary for its intended use. Companies value property, plant, and equipment in subsequent periods using either the cost method or fair value (revaluation) method.,Acquisition of PP closing costs, such as title to the land, attorneys fees, and recording fees; costs of grading, filling, drainin

8、g, and clearing; assumption of any liens, mortgages, or encumbrances on the property; and additional land improvements that have an indefinite life.,Improvements with limited lives, such as private driveways, walks, fences, and parking lots, are recorded as Land Improvements and depreciated. Land ac

9、quired and held for speculation is classified as an investment. Land held by a real estate concern for resale should be classified as inventory.,Acquisition of PP if the loss were deferred, assets would be overstated.,Exchanges - Loss Situation,Valuation of PP Markup cancellations Markdown; Markdown

10、 cancellations,Conventional Method or Cost Method,(based on LCNRV),Conventional Method: computes a cost ratio after markup(and mark up cancellation) but before markdowns. Cost Method: computes a cost ratio after markups and markdowns (and cancellations) .,P9-9: Fuque Inc. uses the retail inventory m

11、ethod to estimate ending inventory for its monthly financial statements. The following data pertain to a single department for the month of October 2011.,Retail Inventory Method,Instructions: Prepare a schedule computing estimate retail inventory using the following methods: (1) Conventional (2) Cos

12、t,LO 6 Determine ending inventory by applying the retail inventory method.,Retail Inventory Method,LO 6 Determine ending inventory by applying the retail inventory method.,=,/,Retail Inventory Method,LO 6 Determine ending inventory by applying the retail inventory method.,=,/,Special Items,Retail In

13、ventory Method,LO 6 Determine ending inventory by applying the retail inventory method.,Freight costs Purchase returns Purchase discounts and allowances Transfers-in Normal spoilage Abnormal shortages Employee discounts,Special Items,Retail Inventory Method,LO 6 Determine ending inventory by applyin

14、g the retail inventory method.,Illustration 9-22,Widely used for the following reasons:,Evaluation,To permit the computation of net income without a physical count of inventory. Control measure in determining inventory shortages. Regulating quantities of merchandise on hand. Insurance information.,R

15、etail Inventory Method,LO 6 Determine ending inventory by applying the retail inventory method.,Some companies refine the retail method by computing inventory separately by departments or class of merchandise with similar gross profits.,Accounting standards require disclosure of:,Presentation and An

16、alysis,LO 7 Explain how to report and analyze inventory.,Presentation of Inventories,Accounting policies adopted in measuring inventories, including the cost formula used (weighted-average, FIFO). Total carrying amount of inventories and the carrying amount in classifications (merchandise, productio

17、n supplies, raw materials, work in progress, and finished goods). Carrying amount of inventories carried at fair value less costs to sell. Amount of inventories recognized as an expense during the period.,Accounting standards require disclosure of:,Presentation and Analysis,LO 7 Explain how to repor

18、t and analyze inventory.,Presentation of Inventories,Amount of any write-down of inventories recognized as an expense in the period and the amount of any reversal of write-downs recognized as a reduction of expense in the period. Circumstances or events that led to the reversal of a write-down of in

19、ventories. Carrying amount of inventories pledged as security for liabilities, if any.,Presentation and Analysis,LO 7 Explain how to report and analyze inventory.,Common ratios used in the management and evaluation of inventory levels are inventory turnover and average days to sell the inventory.,An

20、alysis of Inventories,Measures the number of times on average a company sells the inventory during the period.,Presentation and Analysis,LO 7 Explain how to report and analyze inventory.,Inventory Turnover Ratio,Illustration 9-25,Illustration: In its 2009 annual report Tate & Lyle plc (GBR) reported

21、 a beginning inventory of 562 million, an ending inventory of 538 million, and cost of goods sold of 2,019 million for the year.,Measure represents the average number of days sales for which a company has inventory on hand.,Presentation and Analysis,LO 7 Explain how to report and analyze inventory.,

22、Average Days to Sell Inventory,365 days / 3.67 times = every 99.5 days,Average Days to Sell,Illustration 9-25,The requirements for accounting for and reporting inventories are more principles-based under IFRS. That is, U.S. GAAP provides more detailed guidelines in inventory accounting. Who owns the

23、 goodsgoods in transit, consigned goods, special sales agreementsas well as the costs to include in inventory are essentially accounted for the same under IFRS and U.S. GAAP. U.S. GAAP permits the use of LIFO for inventory valuation. IFRS prohibits its use. FIFO and average cost are the only two acc

24、eptable cost flow assumptions permitted under IFRS. Both sets of standards permit specific identification where appropriate.,In the lower-of-cost-or-market test for inventory valuation, IFRS defines market as net realizable value. U.S. GAAP, on the other hand, defines market as replacement cost subj

25、ect to the constraints of net realizable value (the ceiling) and net realizable value less a normal markup (the floor). IFRS does not use a ceiling or a floor to determine market. Under U.S. GAAP, if inventory is written down under the LCM valuation, the new basis is now considered its cost. As a re

26、sult, the inventory may not be written back up to its original cost in a subsequent period. Under IFRS, the write-down may be reversed in a subsequent period up to the amount of the previous write-down. Both the write-down and any subsequent reversal should be reported on the income statement.,Unlik

27、e property, plant, and equipment, IFRS does not permit the option of valuing inventories at fair value. As indicated above, IFRS requires inventory to be written down, but inventory cannot be written up above its original cost. As indicated, IFRS requires both biological assets and agricultural produce at the point of harvest to be rep