Question

You are working for Mindak LLP, an accounting consulting firm, as a research and accounting specialist. Rowling Inc., an important manufacturing client, has asked you to research and explain the accounting rules for property, plant and equipment issues that the company is experiencing. The client wants you to reference and briefly explain the GAAP rules provided in the FASB codification. Rowling Inc. will then use your business professional memo to look up the rules in the codification.

Instructions: Research the FASB codification to identify several areas of interest (Items a-d below) for your client. Find all parts of the codification that relate to the item requested and then list the ASC Topic, Subtopic, Section and Paragraph for each area that you find. You need to reference all of the codification solutions as FASB ASC XXX-XX-XX-X. You should not copy and paste paragraphs and sentences from the codification into your solution. The client will go to the code reference and look up the GAAP guidance.

In your own words, in addition to citing the reference areas, include 2 sentences that describe the information for the following issues:

(a) the capitalization period for interest being capitalized on self-constructed assets,

(b) impairment of property, plant and equipment,

(c) changes in the estimate of depreciation useful life or salvage value,

(d) the primary disclosures that need to be made for property, plant and equipmen

Answer 1

Answer- As a manufacturing client Rowling Inc should consider following accounting rules set by FASB for property,plant and equipments:

For Plant, Machinery and Equipments ASC-360 topic can be found in the FASB accounting standards codification for more extensive details disclosure in it's financial statement if property plant and equipments are a significant components of an organization. There are two subtopics in ASC 360 i.e. 360-10 which is for overall accounting guidelines, how accounting should be done for property, plant and equipments sale or disposal including depreciation and other costs. Second subtopic is 360-20 which provides guidelines for the organization dealing in real estate sector. Now let's talk about several areas of Interest which is covered by Topic 835 consisting subject topic 1- 835-10 which is for recognizing interest expenses as well as interest income capitalization occuring through sale or disposal of plant, machinery and equipments. Second subtopic is 835-20 citing capitalization of interest expenses to it's historical costs of acquired. Third subtopic is 835-30 consider interest expenses on transactions should be as per market interest and consideration should be included imputation of interest.

Describe the following issues-

1- capitalization period for interest being capitalized on self constructed assets will be the duration of activities required to get the assets ready for it's intended use. Like when you acquired an assets and started construction, capitalization period will be started from the date of acquiring the assets, during the construction period and till completion of the same until it is get ready for the desired use.

2- Impairment of Property, plant and equipments including sale, disposal, transactions or Exchange of property, plant and equipments, Impairment will be record when carrying amount of the assets will be greater than it's expected future cash flow. In simple, assume carrying amount of an asset is $250000 and you expect future cash flow of $80000 per year from this with a useful life of three years then you will record$10000 on account of Impairment.

3- Changes in estimate of depreciation useful life or salvage value will be recorded by the entity on the date when change in the useful life of assets has been made , then assets should be depreciated at the revised rate which will be calculate by allocating outstanding depreciable amount of the assets to the revised remaining useful life of the assets.

4- Primary disclose that need to be made for property, plant and equipments are historical cost of the asset, depreciation method, useful life of the asset , restrictions and capitalization in the asset. These primary disclosures have to be made by an entity in it's financial statement.