Fixed Asset Accounting

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1 Fixed Asset Accounting The Comprehensive Guide Steven M. Bragg

2 Table of Contents Chapter 1 - Introduction to Fixed Assets 2 What are Fixed Assets? 2 The Fixed Asset Designation 3 Fixed Asset Classifications 4 Applicable Accounting Frameworks 6 Accounting for Fixed Assets 6 Accounting for Intangible Assets 7 Accounting for Not-for-Profit Fixed Assets 7 Fixed Asset Disclosures 7 Fixed Asset Controls 8 Fixed Asset Policies and Procedures 8 Fixed Asset Record Keeping 8 Fixed Asset Auditing 9 Fixed Asset Measurements 9 Chapter 2 - Capital Budgeting Analysis 12 Overview of Capital Budgeting 12 Bottleneck Analysis 13 Net Present Value Analysis 14 The Payback Method 16 Capital Budget Proposal Analysis 17 The Outsourcing Decision 18 The Capital Budgeting Application Form 19 The Post Installation Review 21 The Lease or Buy Decision 22 Chapter 3 - Initial Fixed Asset Recognition 27 The Capitalization Limit 27 The Base Unit 28 GAAP: The Initial Measurement of a Fixed Asset 30 GAAP: The Measurement of Assets Acquired in a Business Combination 31 GAAP: The Measurement of Assets Acquired in a Capital Lease 31 GAAP: Non-Monetary Exchanges 32 IFRS: Initial Inclusions in a Fixed Asset 36 IFRS: Initial Cost of a Fixed Asset 38 IFRS: The Measurement of Assets Acquired in a Business Combination 39 IFRS: The Measurement of Assets Acquired in a Capital Lease 39 IFRS: Non-Monetary Exchanges 41 Chapter 4 - Interest Capitalization 45 Why and When Do We Capitalize Interest? 45 Assets for Which You Must Capitalize Interest 46 Assets for Which You Do Not Capitalize Interest 46 The Interest Capitalization Period 47 The Capitalization Rate 48 Calculating Interest Capitalization 49 Derecognizing Capitalized Interest 51 Interest Capitalization Under IFRS 51

3 Chapter 5 - Asset Retirement Obligations 55 The Liability for an ARO 55 The Initial Measurement of an ARO 56 Subsequent Measurement of an ARO 57 Settlement of an ARO 58 AROs Under IFRS 59 Chapter 6 - Depreciation and Amortization 63 The Purpose of Depreciation 63 Depreciation Concepts 64 Accelerated Depreciation 65 Straight-Line Method 66 Sum-of-the-Years Digits Method 66 Double-Declining Balance Method 67 Depletion Method 68 Units of Production Method 70 MACRS Depreciation 71 The Depreciation of Land 72 The Depreciation of Land Improvements 72 Depreciation Accounting Entries 73 Accumulated Depreciation 74 Depreciation Under IFRS 75 Other Depreciation Topics 75 Chapter 7 - Subsequent Fixed Asset Measurement 79 The Capitalization of Additional Expenditures 79 Asset Revaluation for Tangible Assets 81 Asset Revaluation for Intangible Assets 84 Chapter 8 - Fixed Asset Impairment 88 Asset Impairment Under GAAP 88 Asset Impairment Under IFRS 91 Chapter 9 - Fixed Asset Disposal 106 Asset Derecognition 106 The Held-for-Sale Classification 106 Reclassification from Held for Sale 109 Discontinued Operations 111 Abandoned Assets 112 Idle Assets 112 Asset Disposal Accounting 112 Asset Disposal Under IFRS 114 Chapter 10 - Fixed Asset Disclosures 117 GAAP Disclosures 117 IFRS Disclosures 121 Chapter 11 - Not-for-Profit Fixed Asset Accounting 133 Initial Recognition of Fixed Assets 133 Restrictions on Contributed Assets 134 Valuation of Contributed Assets 135 Valuation of Contributed Services 135

4 Valuation of Art and Similar Items 136 Depreciation of Fixed Assets 136 Recordation of Fixed Assets 137 Fixed Asset Controls in a Not-for-Profit Entity 137 Chapter 12 - Fixed Asset Record Keeping 141 Fixed Asset Accounts 141 Construction Project Record Keeping 144 Building Record Keeping 144 Equipment Record Keeping 146 Land Record Keeping 147 Lease Record Keeping 148 Document Retention 150 Fixed Asset Reports 150 Chapter 13 - Fixed Asset Controls 159 Controls for Fixed Asset Acquisition 159 Controls for Fixed Asset Construction 161 Controls for Fixed Asset Theft 161 Controls for Fixed Asset Valuation 163 Controls for Fixed Asset Depreciation 163 Controls for Fixed Asset Disposal 164 The Control of Laptop Computers 165 Chapter 14 - Fixed Asset Policies and Procedures 168 Capital Budgeting Policies and Procedures 168 Asset Recognition Procedures 171 Asset Revaluation Policies and Procedures 173 Asset Exchange Policies and Procedures 174 Depreciation Policies and Procedures 175 Impairment Policies and Procedures 177 Asset Retirement Obligation Policies and Procedures 177 Intangible Asset Policies and Procedures 178 Transfer Policies 179 Disposal Policies and Procedures 179 Record Keeping Policies 180 Tracking Policies and Procedures 181 The Fixed Asset Manual 182 Chapter 15 - Fixed Asset Tracking 186 Tag Tracking 186 Bar Code Tracking 187 RFID Tracking Active Transmission 187 RFID Tracking Passive Transmission 188 Wireless Monitoring 188 Chapter 16 - Fixed Asset Measurements 192 Sales to Fixed Assets Ratio 192 Repairs and Maintenance Expense to Fixed Assets Ratio 193 Accumulated Depreciation to Fixed Assets Ratio 194 Cash Flow to Fixed Asset Requirements Ratio 195 Return on Assets Employed 196 Return on Operating Assets 197

5 Bottleneck Utilization 198 Unscheduled Machine Downtime 199 Chapter 17 - Fixed Asset Auditing 203 Fixed Asset Audit Objectives 203 Fixed Asset Audit Procedures 203 Auditor Requests 206 Appendix - Journal Entries 211 Glossary 215

Fixed Asset Accounting

Fixed Asset Accounting 4 th Edition Steven M. Bragg Chapter 1 Introduction to Fixed Assets... 1 Learning Objectives... 1 Introduction... 1 What are Fixed Assets?... 1 The Fixed Asset Designation... 2 Fixed