D104 Intermediate Accounting II: Unit 2 - Acquisition and Disposition of Property, Plant, and Equipment

What are three characteristics of PPE, Property, Plant, and Equipment? (U2, L1)

1. They are acquired for use in operations & not for resale.

2. They are long-term in nature & usually depreciated.

3. They possess physical substance.

What is an example of the characteristic, "They are acquired for use in operations and not for resale."? (U2, L1)

Only assets used in normal business operations are classified as PPE. For example, an idle building is more appropriately classified as an investment, and land developers classify land as inventory.

What is an example of the characteristic, "They are long-term in nature and usually depreciated."? (U2, L1)

PPE yield services over a number of years. Companies allocate the cost of the investment in these assets to future periods through periodic depreciation charges. The exception is land, which is depreciated only if a material decrease in value occurs.

What is an example of the characteristic, "They possess physical substance."? (U2, L1)

PPE are tangible assets characterized by physical existence or substance. This differentiates them from intangible assets, such as patents or goodwill. Also does not become part of a product held for resale.

How are the PPE costs allocated in the accounting process? (U2, L1, Video 1)

Since they are assets used in the operations of a business, they are always tangible and typically classified as long-term on the balance sheet. The cost of PPE is matched with the revenues generated by those assets.

What are the criteria for classification of PPE? (U2, L1, V1)

Plant assets:

1. are currently used in operations

2. have a useful life of more than 1 year

3. have physical substance, not an intangible asset

4. land is the only asset not depreciated

What is and exception to the NO depreciation of land? (U2, L1, V1)

Exceptions to depreciation of land:

Land improvements that have a finite useful life, like parking lots, & fencing.

Natural resources - gravel pit, coal mine, tract of timberland.

What is depletion? (U2, L1, V1)

Depletion in accounting is the allocation of the cost of a natural resource in the generation of revenue for a business.

What is one of the purposes of financial accounting and reporting? (U2, L1, V1)

It is to provide decision-useful information.

How should the acquisition of PPE be valued for financial accounting & reporting purposes? (U2, L1)

Most companies use historical cost as the basis for valuing PPE.

What is historical cost in regard to financial accounting and reporting? (U2, L1)

Historical cost is the value of an asset measured by the cash or cash equivalent price of obtaining the asset and bringing it to the location and condition necessary for its intended use.

When should gains or losses be realized on PPE assets? (U2, L1)

Companies should not anticipate gains and losses but should recognize them only when the asset is sold.

Why is fair value not typically used for an asset classified as PPE? (U2, L1)

Companies should not write up PPE to reflect fair value when it is above cost because; historical cost involves actual, not hypothetical, transactions and so it is the most reliable.

What is the exception to using fair value on PPE assets? (U2, L1)

If the fair value of the PPE is less than it's carrying amount the asset may be written down. This occurs when the asset is impaired and where the asset is being held for sale.

When is a long-lived asset not depreciated? (U2, L1)

A long-lived asset is not depreciated if it is classified as "HELD FOR SALE". This is because such assets are not being used to generate revenues.

When is fair value used in financial accounting and reporting? (U2, L1)

Fair value is relevant to inventory but less so to PPE which, consistent with the going concern assumption, are held for use in the business, not for sale like inventory.

What expenditures are associated with Cost of Land in financial accounting and reporting? (U2, L1)

All expenditures to acquire land and ready it for its intended use are considered part of the Cost of Land.

1. purchase price

2. closing costs

3. costs to get land ready

4. assumption of any liens, mortgages, or encumbrances

5. additional land improvements with indefinite life

How are land improvements handled in financial accounting and reporting? (U2, L1)

Improvements with limited lives are recorded separately, such as private driveways, walks, fences, and parking lots.

What is an example of an encumbrance? (U2, L1)

Home Depot purchases land and assumes certain obligations on the land such as back taxes and liens. The land purchase cost $50k, there were back taxes of $5k, and a lien of $10k. The total recorded Cost of Land for this purchase was $65k.

What expenditures are associated with Cost of Buildings in financial accounting and reporting? (U2, L1)

Cost of Buildings should include all expenditures related directly to their acquisition or construction.

1. materials, labor, & overhead during construction

2. professional fees & building permits

What expenditures are associated with Cost of Equipment in financial accounting and reporting? (U2, L1)

Cost of Equipment should include purchase price, freight and handling charges, transit insurance, special foundations if necessary, assembling and installation costs, and conducting trial runs.

What is the exception for capitalizing repair costs on PPE? (U2, L1, V2)

Repairs are only capitalized when it is a major overhaul of a piece of equipment such that the repairs extend its useful life, increase the quantity of units that the equipment could produce or the quality of the units.

What interest costs can be capitalized on Cost to Construct PPE in financial accounting and reporting? (U2, L1, V2)

Companies should only capitalize actual interest costs incurred on debt financing related to the construction. Not imputed interest on funds used during construction, (like stock financing).

What three conditions must exist simultaneously for interest to be capitalized? (U2, L2, V1)

1. Interest cost is being incurred

2. Construction activities are taking place

3. Construction expenditures are occurring

What is ACTUAL INTEREST in regard to capitalized interest in financial accounting and reporting? (U2, L2, V1)

Actual interest is the interest charged on the outstanding debt during the period of construction, that is calculated like normal interest is calculated. (debt outstanding X interest rate X time)

How much interest can be Capitalized? (U2, L2, V1)

The amount of interest that can be capitalized is the LESSER of the actual interest cost incurred during the period or the amount of avoidable interest.

What is AVOIDABLE INTEREST in regard to capitalized interest in financial accounting and reporting? (U2, L2, V1)

Avoidable interest is the interest that could have been avoided if expenditures for the construction had not been made. (Interest rate X average accumulated expenditures (aka AAE), for qualifying assets during the period)

What is (AAE) Average Accumulated Expenditures in regard to the calculation of avoidable interest to be capitalized for financial accounting and reporting? (U2, L2, V1)

AAE are the total expenditures during the construction period, and therefore that would be the debt that could have been avoided had construction not taken place.

How is the AVERAGE determined for AAE in regard to capitalized interest for financial accounting and reporting? (U2, L2, V1)

AAE average is determined by using the weighted average of the actual expenditures during the year or simple average of beginning and ending AAE divided by two. (AAE X Interest Rate = Avoidable Interest)

How do you calculate the WEIGHTED AVERAGE of AAE? (U2, L2, V1)

Weighted Average:

Assume 2 pymts for construction of $40,000 on Jan 1 & July 1

The weighted average is (40,000 x 12/12) + (40,000 x 6/12) = 60,000

How do you calculate the SIMPLE AVERAGE of AAE? (U2, L2, V1)

Simple Average:

Assume small discrete pymts were made evenly throughout the year and a total of $180,000 was paid during the year.

Average of beginning & ending costs, (0 + 180,000) / 2 = 90,000.

When you compute AAE, what do you have to make sure applies to the situation? (U2, L2, V1)

1. Make sure that expenditures qualify for capitalization.

2. Apply interest rate to AAE to determine avoidable interest.

3. Calculate the actual interest incurred if not known.

What is capitalized interest in regard to AAE for financial accounting and reporting? (U2, L2, V1)

Capitalized interest is the LESSER of avoidable interest or actual interest incurred.

What are three things to be considered regarding Interest Capitalization? (U2, L2)

1. Qualifying assets.

2. Capitalization period.

3. Amount to capitalize.

What is a Qualifying Asset in regard to interest capitalization for financial accounting and reporting purposes? (U2, L2)

To qualify for interest capitalization, assets must require a period of time to get them ready for their intended use.

What is the Capitalization Period in regard to interest capitalization for financial accounting and reporting purposes? (U2, L2)

The capitalization period is the period of time during which a company must capitalize interest.

What three conditions must exist for interest capitalization to continue? (U2, L2)

1. expenditures for the asset have been made

2. activities are necessary to get the asset ready for its intended use are in progress

3. interest cost is being incurred

What is an example of Weighted-AAE in regard to capitalization of interest for financial accounting and reporting purposes? (U2, L2)

Expenditures:

Date Amount x Cap Period = Weighted-AAE

Mar 1 $240,000 10/12 $200,000

Jul 1 $480,000 6/12 $240,000

Nov 1 $360,000 2/12 $60,000

$1,080,000 $500,000

What two principles are followed when selecting the appropriate Interest Rates to be applied to the Weighted-AAE in regard to financial accounting and reporting? (U2, L2) part 1

1. For the portion of Weighted-AAE that is < or = to any amount borrowed specifically to finance construction of the assets, use the interest rate incurred on the specific borrowings.

What two principles are followed when selecting the appropriate Interest Rates to be applied to the Weighted-AAE in regard to financial accounting and reporting? (U2, L2) part 2

2. For the portion of Weighted-AAE that is > any debt incurred specifically to finance construction of the assets, use a weighted average of interest rates incurred on all other outstanding debt during the period.

What is an example of the computation of a weighted-average interest rate for debt greater than the amount incurred specifically to finance construction of the assets? (U2, L2)

Interest rate & term & source Principal Interest

12%, 2-year note $600,000 $72,000

9%, 10-year bond $2,000,000 $180,000

7.5%, 20-year bods $5,000,000 $375,000

$7,600,000 $627,000

Weighted-average interest rate = Total Interest/Total Principal

= $627,000 / $7,600,000 = 8.25%

How should the journal entries be recorded for the following scenario of Capitalized Interest on AAE for financial accounting and reporting purposes? (U2, L2)

Scenario: Shalla capitalizes the lesser of $120,228 (avoidable interest) & $239,500 (actual Interest).

Journal Entries for Capitalized Interest on AAE:

Date Description Debit Credit

Jan 1 Land 100,000

Bldg (construction in process) 110,000

Cash 210,000

Mar 1 Buildings (construction) 300,000

Cash 300,000

May 1 Buildings (construction) 540,000

Cash 540,000

Dec 31 Buildings (construction) 450,000

Cash 450,000

Bldgs Capitalized Interest (120,228)

Interest Expense (239,500-120,228) 119,272

Cash (112,500+55,000+72,000) 239,500

How is capitalized interest expensed in financial accounting and reporting? (U2, L2)

Capitalized interest costs are written off as part of the depreciation over the useful life of the asset, NOT over the term of the debt.

How is the portion of actual interest incurred that is not capitalized from AAE expensed in financial accounting and reporting? (U2, L2)

The portion of actual interest incurred that is NOT capitalized is interest expense in the period in which it was incurred.

What two issues related to interest capitalization merit special attention? (U2, L2)

1. Expenditures for land

2. Interest revenue

What are the considerations regarding Expenditures for Land regarding Interest Capitalization? (U2, L2)

1. If a company purchases land as a site for a structure/plant; interest costs capitalized during the construction are part of the cost of the plant, not the land.

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

3. However, it should NOT capitalize interest costs involved in the purchasing of land held for speculation because the asset is ready for its intended use.

What are the considerations regarding Interest Revenue for Interest Capitalization? (U2, L2)

Often companies will invest borrowed money for construction of assets until it is needed for payments. The company should not net or offset interest revenue against interest cost incurred to finance the construction.

How does GAAP recommend accounting for interest costs incurred during construction? (U2, L2, Q1)

GAAP recommends that you capitalized the actual interest cost for the period incurred during the period.

What does Capitalized mean in regard to financial accounting and reporting? (U2, L3, V1)

Capitalized means that it's recorded on the balance sheet versus expensed on the income statement. The costs are included with an asset that depreciated over the useful life of the asset.

How do you post the journal entry when you capitalize costs in financial accounting and reporting? (U2, L3, V1)

When you capitalize a cost, the credit is going to be to cash and the debit is going to be to the asset.

Where if you expense to cost, the debit is going to be an expense on the income statement.

What are the two categories that capitalized costs fall into in regard to financial accounting and reporting? (U2, L3, V1)

1. Costs to get the asset ready for use.

2. Costs to extend the assets' useful live or improve productivity.

What are some examples of costs to get an asset ready for use? (U2, L3, V1)

1. Sales tax on that asset

2. Cost to set up the equipment.

3. Cost to test the equipment

4. Attorney & title fees with the purchase of land

5. Any cost for buildings and construction

What is an example of Capitalized Costs for the following scenario? (U2, L3, V1)

Scenario: A Corp issued debt to purchase 10 acres of land for development purposes. Expenditures related to this purchase are as follows:

Purchase price $1,000,000

Real estate taxes in arrears $15,000

Debt issuance costs $2,000

Attorney fee - title search on land $5,000

The company should record its acquisition of the land in its financial statements at what value?

Purchase price $1,000,000 include

Real estate taxes in arrears $15,000 include

Debt issuance costs $2,000 not included

Attorney fee - title search on land $5,000 include

Total value should be recorded at $1,020,000

What is an example of Capitalized Costs for the following scenario? (U2, L3, V1)

Scenario: Assume a purchase of a tract of land for a future factory site for $200,000. The old building on the property was razed and salvaged materials resulting from demolition were sold. Costs & proceeds were as follows:

Demolition of old building $25,000

Legal fees for purchase contract $5,000

Title guarantee insurance $6,000

Proceeds from sale of salvaged materials ($4,000)

How much should be recorded for the purchase of the land?

Purchase price for land $200,000

Demolition of old building $25,000

Legal fees for purchase contract $5,000

Title guarantee insurance $6,000

Proceeds from sale of salvaged materials ($4,000)

Total recorded should be $232,000

How should companies that purchase plant assets on (aka Deferred-Payment Contracts), long-term credit contracts, using notes, mortgages, bonds, or equipment obligations handle the financial accounting and reporting? (U2, L3)

To properly reflect the cost, companies account for assets purchased on long-term credit contracts at the present value of the consideration exchanged between the contracting parties at the date of the transaction.

How should companies record PPE for financial accounting and reporting purposes? (U2, L3)

Companies should record PPE at the fair value of what they give up or at the fair value of the asset received, whichever is more clearly evident.

How should companies that purchase plant assets subject to Cash Discounts for prompt payment, handle the financial accounting and reporting; there are two points of view on this question? (U2, L3)

1. One approach considers the discount - whether taken or not - as a reduction in the cost of the asset.

2. Second approach argues that failure to take the discount should not always be considered a loss, if terms are unfavorable.

How should companies that purchase plant assets with NO stated interest rate or if the specified rate is unreasonable for financial accounting and reporting purposes? (U2, L3)

The object is to approximate the interest rate the buyer and seller would negotiate. Also, the company uses the cash exchange price of the asset acquired as the basis for recording the asset & measuring the interest element.

How would a company record the purchase of an asset using the Effective-Interest Approach, in the following example? (U2, L3)

Scenario:

Sutter company purchases a specially built robot spray painter for its production line. The company issues a $100,000, 5 yr, zero interest-bearing note to Wrigley Robotics. The prevailing market rate of interest for obligations of this nature is 10%. Sutter pays off the note in five $20,000 installments at the end of each year. Fair value is not readily available, so Sutter approximates the robot's value by establishing the fair value (present value) of the note.

Effective-Interest Approach - entries for the purchase & computation of present value are as follows:

Date Description of transaction Credit Debit

Jan 1 Equipment $75,816

Discount on Notes Payable $24,184

Notes Payable $100,000

Dec 31 Interest Expense (end yr 1) $7,582

Notes Payable $20,000

Cash $20,000

Discount on Notes Payable $7,582

NOTE: Interest expense in first year under the effective-interest approach is $7,582, ($100,000 -$24,184) x .10.

_______________________End of Second Year__________________________________

Dec 31 Interest Expense (end yr 2) $6,340

Notes Payable $20,000

Cash $20,000

Discount on Notes Payable $6,340

NOTE: Interest expense in the second year under the effective-interest approach is $6,340, {[($100,000 - $24,184) - ($20,000 - $7,582)] x .10}

How would a company record the purchase of an asset today in exchange for a $10,000 zero-interest bearing note payable four years from now using the Present Value Consideration of the asset? (U2, L3)

Scenario:

The company would not record the asset @ $10,000 on Dec 31, 2020. Instead, it would be the present value of the $10,000 note that establishes the exchange price of the transaction, (the purchase price of the asset). Assuming an appropriate interest rate of 9% at which to discount this single payment of $10,000 due 4 years from now.

Present Value Consideration - entries for the purchase & computation of present value are as follows:

Date Description of transaction Credit Debit

12/31/24 Equipment purchased $7,084.30

Present Value Discount $2,915.70

Cash $10,000

NOTE: exchange price of equipment purchased is $7,084.30 ($10,000 x .70843) for PC of single sum, PV = $10,000 (PVF 4,9%).

Use the Present Value formula to calculate the PV of $10,000.

How would a company record the purchases a group of assets at a lump-sum price for the following scenario? (U2, L3)

Scenario: (using a multiple valuation approach)

Norduct Homes purchases several assets of a small heating concern, Comfort Heating, for $80,000. Its assets sold are as follows:

Description of the Asset Book Value Fair Value____

Inventory $30,000 $25,000

Land $20,000 $25,000

Building $35,000 $50,000

$85,000 $100,000

The assumption is that costs will vary in direct proportion to fair value.

Determine Fair Values - using a multiple valuation approach:

Norduct Homes allocates the $80,000 purchase price on the basis of the relative fair values (assuming specific identification of costs is impracticable).

Inventory (25,000/100,000 x 80,000 = 20,000)

Land (25,000/100,000 x 80,000 = 20,000)

Building (50,000/100,000 x 80,000 = 40,000)

How does a company record the acquisition of property by Issuance of Stock, such as a common stock, where the par or stated value of such stock fails to properly measure the property cost?

If trading of the stick is active, the market price of the stock issued is a fair indication of the cost of the property acquired. The stock is a good measure of the current cash equivalent price.

How would a company record the purchase of property by Issuance of Stock for the following scenario? (U2, L3)

Scenario:

Upgrade Living Co. decides to purchase some adjacent land for expansion of its carpeting and cabinet operations. In lieu of paying cash for the land, the company issues to Deedland Company 5,000 shares of common stock (Pat value $10) that have a fair value of $12 per share.

Recording journal entries for the Issuance of Stock to purchase land:

Date Description of transaction Credit Debit

Jan 02 Land (5,000 x $12) $60,000

Common Stock (5,000 x $10) $50,000

Paid-in Capital, Excess of Par-common stk $10,000

NOTE: If the company cannot determine the market price of the common stock exchanged, it stablishes the fair value of the property. It then uses the value of the property as the basis for recording the asset & issuance of the common stock.

What is prudent cost concept in regard to other asset valuation methods used when recording PPE for financial accounting and reporting purposes? (U2, L3)

Prudent cost is the concept that states that if for some reason a company ignorantly paid too much for an asset originally, it is theoretically preferable to charge a loss immediately.

At what value should assets acquired in a lump-sum purchase be recorded? (U2, L3, Q1)

When a purchase is made at a lump-sum price, the company allocates the cost based on the Relative Fair Market Values of the assets.

What are four types of expenditures recorded in financial accounting and reporting? (U2, L4)

1. additions

2. improvements and replacements

3. rearrangement and reinstallation

4. repairs

What is an addition in regard to financial accounting and reporting of expenditures? (U2, L4)

Additions - increase or extension of existing assets. Companies capitalize any addition to plant assets because a new asset is created. example - new wing to a hospital

What is an improvement in regard to financial accounting and reporting of expenditures? (U2, L4)

Improvements - expenditures that substitute a better asset for an existing asset. example - a concrete floor for a wooden floor.

What is a Replacement in regard to financial accounting and reporting of expenditures? (U2, L4)

Replacements - expenditures that substitutes a similar asset for an existing asset. example - a wooden floor for a wooden floor.

What two questions should be asked when determining to capitalize an improvement and replacement in regard to financial accounting and reporting? (U2, L4)

1. Does the expenditure increase the future service potential of the asset? If YES, then Capitalize, & if NO, then Expense.

2. Does the expenditure merely maintain the existing level of service? If YES, then Expense, & if NO, then Capitalize.

What are the three ways that improvements and replacements can be capitalized in financial accounting and reporting? (U2, L4)

The 3 ways for Capitalizing improvements & replacements:

1. Substitution approach

2. Capitalize the new cost

3. Charge to accumulated depreciation

What is the Substitution Approach in regard to capitalizing improvements and replacements in financial accounting and reporting? (U2, L4)

The substitution approach is correct if the carry amount of the old asset is available. It is then a simple matter to remove the cost of the old asset and replace it with the cost of the new asset.

What is an example of the journal entries using the Substitution Approach in the following scenario? (U2, L4)

Scenario:

Instinct Enterprises decides to replace the pipes in its plumbing system. A plumber suggests that the company use plastic tubing in place of the cast iron pipes in its plumbing system. The old tubing has a book value of $15,000, (cost of $150,000 less accumulated depreciation of $135,000), and a scrap value of $1,000. The plastic tubing costs $125,000.

Journal entries using Substitution Approach for replacement Capitalized expenditure on an asset:

Plant Assets (plumbing system) 125,000

Accumulated depreciation - Plant Assets 135,000

Loss on Disposal of Plant Assets 14,000

Plant Assets 150,000

Cash ($125,00 - $1,000) 124,000

What is the Capitalize the New Cost approach for improvements in financial accounting and reporting? (U2, L4)

The Capitalize the New Cost approach is used when a company cannot determine the carry amount of the existing asset. This approach capitalizes the improvement and keeps the carrying amount of the old asset on the books.

What is the Charge to Accumulated Depreciation approach for improvements in financial accounting and reporting? (U2, L4)

In cases when a company does NOT improve quantity or quality of the asset itself but extends its useful life, the company debits the expenditure to Accumulated Depreciation rather than an asset account.

What is Rearrangement and Reinstallation in regard to capitalization of expenditures on existing assets for financial accounting and reporting purposes? (U2, L4)

Rearrangement and reinstallation expenditures are intended to benefit future periods that result from rearranging or reinstalling assets.

What question should be asked when determining to capitalize Rearrangements and Reinstallations in regard to financial accounting and reporting? (U2, L4)

Is the Rearrangement and Reinstallation cost material in amount as an asset to be amortized over future periods expected to benefit. If YES, then capitalize, and if NO, then expense immediately.

How are repairs / maintenance expenditures handled in regard to recording for financial accounting and reporting? (U2, L4)

A company makes ordinary repairs to maintain plant assets in operating condition and these expenditures are recorded to an expense account in the period in which they occurred.

What is an Expenditure in regard to financial accounting and reporting? (U2, L5, V1)

Expenditure is a cost that is recognized on the Income Statement. Unless it is capitalized then it is included in the value of the asset on the Balance Sheet.

Why is Depreciation considered an estimate of cost allocation and not a process of valuation? (U2, L5)

Because the gain or loss is really a correction of net income for the years during which the fixed asset was used.

What is an example of how a company would record the Sale of Plant Assets in regard to disposition of PPE in financial accounting and reporting? (U2, L5)

Scenario:

Barret Company recorded depreciation on a machine costing $18,000 for nine years at the rate of $1,200 per year. If it sells the machine in the middle of the tenth year for $7,000.

Journal entries to record Sale of Plant Asset:

Depreciation Expense ($1,200 x1/2) 600

Accumulated Depreciation-Machinery 600

The Journal entry for the sale of the asset:

Cash 7,000

Accumulated Depreciation-Machinery 11,400

[($1,200 x 9) + 600]

Machinery 18,000

Gain on Disposal of Machinery 400

NOTE: the book value of the machinery at the time of the sale is $6,600, ($18,000 - $11,400). Because the machinery sold for $7,000, the amount of gain on the sale is $400.

What is Involuntary Conversion in regard to the disposition of PPE in financial accounting and reporting? (U2, L5)

Involuntary Conversion occurs when an asset's service is terminated through fire, flood, theft, condemnation or some other manner not intended by the asset owner.

What is an example of condemnation award or insurance recovery in regard to the disposition of PPE in financial accounting and reporting? (U2, L5)

Scenario:

Camel Transport Corp. had to sell a plant located on company property that stood directly in the path of an interstate highway. Camel received $500,000, which exceeded the $200,000 book value of the plant & land (cost of $400,000 less accumulated depreciation of $200,000).

Camel Transport Corp made the following Journal Entries:

Cash 500,000

Accumulated Depreciation-Plant Assets 200,000

Plant Assets 400,000

Gain on Disposal of Plant Assets 300,000

What does GAAP require when there is a gain or loss when a nonmonetary asset is involuntarily converted to monetary assets even though an enterprise reinvests the monetary asset in replacement of nonmonetary assets? (U2, L5)

GAAP requires that they be recorded as two transactions.

What are three miscellaneous problems that can occur involving the disposition of PPE? (U2, L5)

1. If a company scraps or abandons an asset without any cash recovery, it recognizes a loss equal to the asset's gook value.

2. If scrap value exists, the gain or loss that occurs is the difference between the asset's scrap value and its book value.

3. If an asset still can be used even though it is fully depreciated, it may be kept on the books at historical cost less depreciation.