Fixed Asset Accounting

348 Pages·2011·1.63 MB·English

by  Steven Bragg

AccountingTools Series
Fixed
Asset

Accounting
A Comprehensive Guide
Steven M. Bragg, CPA
Fixed Asset Accounting

The Comprehensive Guide

Steven M. Bragg
Copyright © 2011 by Steven M. Bragg. All rights reserved.

Published by Steven M. Bragg, Centennial, Colorado.

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ISBN-13: 978-0-9800699-2-1

Printed in the United States of America
Table of Contents
Chapter 1 - Introduction to Fixed Assets 1
What are Fixed Assets? 1
The “Fixed Asset” Designation 3
Fixed Asset Classifications 4
Applicable Accounting Frameworks 7
Accounting for Fixed Assets 7
Accounting for Intangible Assets 9
Accounting for Not-for-Profit Fixed Assets 9
Fixed Asset Disclosures 10
Fixed Asset Controls 10
Fixed Asset Policies and Procedures 11
Fixed Asset Record Keeping 11
Fixed Asset Auditing 12
Fixed Asset Measurements 12
Chapter 2 - Capital Budgeting Analysis 17
Overview of Capital Budgeting 17
Bottleneck Analysis 19
Net Present Value Analysis 20
The Payback Method 23
Capital Budget Proposal Analysis 24
The Outsourcing Decision 26
The Capital Budgeting Application Form 28
The Post Installation Review 32
The Lease or Buy Decision 33
Chapter 3 - Initial Fixed Asset Recognition 39
The Capitalization Limit 39
The Base Unit 41
GAAP: Initial Measurement of a Fixed Asset 44
GAAP: Measurement of Assets Acquired in a Business
Combination 45
GAAP: Measurement of Assets Acquired in a Capital Lease 45
GAAP: Non-Monetary Exchanges 47
IFRS: Initial Inclusions in a Fixed Asset 53
IFRS: Initial Cost of a Fixed Asset 55
IFRS: Measurement of Assets Acquired in a Business
Combination 58
IFRS: Measurement of Assets Acquired in a Capital Lease 58
IFRS: Non-Monetary Exchanges 60
Chapter 4 - Interest Capitalization 66
Why and When Do We Capitalize Interest? 66
Assets for Which You Must Capitalize Interest 68
Assets for Which You Do Not Capitalize Interest 68
The Interest Capitalization Period 69
The Capitalization Rate 71
Calculating Interest Capitalization 73
Derecognizing Capitalized Interest 75
Interest Capitalization Under IFRS 75
Chapter 5 - Asset Retirement Obligations 81
The Liability for an ARO 81
The Initial Measurement of an ARO 83
Subsequent Measurement of an ARO 85
Settlement of an ARO 86
AROs Under IFRS 88
Chapter 6 - Depreciation and Amortization 92
The Purpose of Depreciation 93
Depreciation Concepts 93
Accelerated Depreciation 95
Straight-Line Method 97
Sum-of-the-Years’ Digits Method 97
Double-Declining Balance Method 98
Depletion Method 100
Units of Production Method 103
MACRS Depreciation 104
The Depreciation of Land 106
The Depreciation of Land Improvements 107
Depreciation Accounting Entries 108
Accumulated Depreciation 109
Depreciation Under IFRS 110
Other Depreciation Topics 111
Chapter 7 - Subsequent Fixed Asset Measurement 116
The Capitalization of Additional Expenditures 116
Asset Revaluation for Tangible Assets 120
Asset Revaluation for Intangible Assets 124
Chapter 8 - Fixed Asset Impairment 129
Asset Impairment Under GAAP 129
Asset Impairment Under IFRS 134
Chapter 9 - Fixed Asset Disposal 156
Asset Derecognition 156
The Held-for-Sale Classification 156
Reclassification from Held for Sale 161
Discontinued Operations 164
Abandoned Assets 166
Idle Assets 166
Asset Disposal Accounting 166
Asset Disposal Under IFRS 168
Chapter 10 - Fixed Asset Disclosures 173
GAAP Disclosures 173
IFRS Disclosures 179
Chapter 11 - Not-for-Profit Fixed Asset Accounting 197
Initial Recognition of Fixed Assets 197
Restrictions on Contributed Assets 199
Valuation of Contributed Assets 200
Valuation of Contributed Services 201
Valuation of Art and Similar Items 202
Depreciation of Fixed Assets 202
Recordation of Fixed Assets 203
Fixed Asset Controls in a Not-for-Profit Entity 203
Chapter 12 - Fixed Asset Record Keeping 208
Fixed Asset Accounts 208
Construction Project Record Keeping 212
Building Record Keeping 213
Equipment Record Keeping 215
Land Record Keeping 218
Lease Record Keeping 219
Document Retention 221
Fixed Asset Reports 222
Chapter 13 - Fixed Asset Controls 236
Controls for Fixed Asset Acquisition 236
Controls for Fixed Asset Construction 239
Controls for Fixed Asset Theft 240
Controls for Fixed Asset Valuation 242
Controls for Fixed Asset Depreciation 244
Controls for Fixed Asset Disposal 245
The Control of Laptop Computers 246
Chapter 14 - Fixed Asset Policies and Procedures 251
Capital Budgeting Policies and Procedures 251
Asset Recognition Procedures 256
Asset Revaluation Policies and Procedures 259
Asset Exchange Policies and Procedures 261
Depreciation Policies and Procedures 262
Impairment Policies and Procedures 266
Asset Retirement Obligation Policies and Procedures 267
Intangible Asset Policies and Procedures 268
Transfer Policies 269
Disposal Policies and Procedures 270
Record Keeping Policies 271
Tracking Policies and Procedures 272
The Fixed Asset Manual 274
Chapter 15 - Fixed Asset Tracking 280
Tag Tracking 280
Bar Code Tracking 282
RFID Tracking – Active Transmission 283
RFID Tracking –Passive Transmission 284
Wireless Monitoring 284
Chapter 16 - Fixed Asset Measurements 290
Sales to Fixed Assets Ratio 290
Repairs and Maintenance Expense to Fixed Assets Ratio 292
Accumulated Depreciation to Fixed Assets Ratio 294
Cash Flow to Fixed Asset Requirements Ratio 295
Return on Assets Employed 296
Return on Operating Assets 298
Bottleneck Utilization 299
Unscheduled Machine Downtime 300
Chapter 17 - Fixed Asset Auditing 306
Fixed Asset Audit Objectives 306
Fixed Asset Audit Procedures 307
Auditor Requests 311
Appendix - Journal Entries 318
Glossary 324
Preface
Fixed Asset Accounting describes every aspect of the accounting
for fixed assets under both GAAP and IFRS, illustrates key con-
cepts with numerous examples, and adds review questions and an-
swers to improve your comprehension. There are also dozens of
tips and definitions throughout the text. The book is designed for
both practicing accountants and students, since both can benefit
from its detailed descriptions of fixed asset budgeting, acquisition,
disposition, and more. Fixed Asset Accounting addresses four ma-
jor fixed asset accounting topics, which are:

• Part I – Accounting for Fixed Assets. Chapters 1 through 9
cover the complete range of accounting activities related to
fixed assets, including capital budgeting, asset recognition,
interest capitalization, asset retirement obligations, depre-
ciation, impairment, and disposal.
• Part II – Special Accounting for Fixed Assets. Chapter 10
notes the various financial statement disclosures associated
with fixed assets, while Chapter 11 delves into special con-
siderations for the not-for-profit entity.
• Part III – Fixed Asset Systems. Given the high cost of fixed
assets, you need to surround them with a strong control sys-
tem, which is addressed in four chapters. Chapter 12 de-
scribes fixed asset record keeping, while Chapter 13 delves
into a variety of controls over all aspects of fixed asset us-
age. Chapter 14 itemizes many policies and procedures for
fixed asset transactions. Finally, Chapter 15 addresses a
number of available fixed asset tracking technologies.
• Part IV – Related Topics. There are several ancillary areas
that may be of interest to the fixed asset practitioner. Chap-
ter 16 describes a number of ratios that can be used to
monitor fixed assets. Chapter 17 gives an overview of the
procedures that auditors typically follow during the fixed
asset portion of an audit, and describes the information they
will request as part of this audit.