ACC 341 Test 4

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8 Terms

1
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Characteristics of plant asset

  1. used in operations and not for resale

  2. long term in nature and usually depreciated

  3. possess physical substance


2
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costs go into land vs. building

  1. purchase price

  2. closing costs (title to land, attorneys fees, commissions to real estate agents, and recording fees)

  3. costs of grading, filling, draining, and clearing (raising old building) - however digging foundations for new building are capitalized with building (not land)

  4. assumption of any liens, mortgages, or encumbrances on property

  5. additional land improvements having indefinite life


3
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handling overhead during purchase of asset

  1. purchase price

  2. closing costs, such as attorney fees, title insurance, real estate agent fees

  3. assumption of unpaid taxes/mortgages on property

  4. cost of remodeling or repairs to ready the building for its intended use


4
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handling overhead during construction by independent contractor of asset

  1. contract price

  2. architect fees and building permits

  3. executive costs

  4. third party costs directly attributable to construction, such as advisory/valuation costs

  5. interest on financing during construction period


5
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handling overhead during self construction of asset

  1. materials, labor, and overhead directly related to construction

  2. pro rate portion of fixed overhead

  3. interest on construction financing during construction period


6
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calculating overhead

incremental variable overhead + allocated fixed overhead

7
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Characteristics necessary to qualify for capitalization of interest costs during construction

  1. assets under construction for company’s own use (buildings, manufacturing plants, large machinery)

  2. assets intended for sale or lease that are constructed or otherwise produced as direct projects (ships or real estate developments)

  3. assets financed through issuance of long term debt


8
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interest can be capitalized into land during self construction

  1. if company purchases land as side for structure, interest costs capitalized are part of cost of plant not land

  2. if company develops land for lot sales, it includes any capitalized interest cost as part of acquisition cost of developed land