CPA FAR Property, Plant, Equipment, and Intangibles — Flashcards

In the Financial Accounting and Reporting (FAR) section of the CPA exam, Property, Plant, and Equipment (PP&E) and Intangible Assets are core topics focusing on the lifecycle of long-term assets: from initial acquisition and capitalization to periodic depreciation/amortization and eventual disposal or impairment. 

1. Property, Plant, and Equipment (PP&E)
PP&E are tangible, long-lived assets used in operations. 
Initial Measurement: Reported at historical cost, which includes the purchase price plus all costs necessary to get the asset ready for its intended use (e.g., freight-in, installation, testing, and site preparation).
Land vs. Buildings: Land is not depreciated. Costs like clearing, leveling, or removing old buildings are typically added to the land's cost, whereas fences and parking lots are "Land Improvements" and are depreciated.
Capitalized Interest: For internally constructed assets, interest incurred during the construction period is capitalized based on weighted-average accumulated expenditures.

Subsequent Expenditures:
Capitalize: If the expenditure increases the asset’s life, capacity, or efficiency (e.g., additions or major improvements).
Expense: Routine repairs and maintenance that only maintain the asset's current condition.
 

Depreciation Methods:
Straight-Line: Cost - Salvage Value / Useful life.
Double-Declining Balance: Beginning Book Valve * 2/Useful Life.
Units of Production: Based on actual usage rather than time. 

2. Intangible Assets
Intangibles lack physical substance but provide future economic benefits. 

Types:
Finite-lived: (e.g., patents, copyrights) Amortized over the shorter of their legal or useful life.
Indefinite-lived: (e.g., trademarks, goodwill) Not amortized but tested at least annually for impairment.
Goodwill: Only recognized in a business combination (acquisition). It is the excess of the purchase price over the fair value of net identifiable assets acquired.
Research & Development (R&D): Under US GAAP, most R&D costs are expensed as incurred, except for certain software development costs after "technological feasibility" is reached. 

3. Impairment of Long-Lived Assets (US GAAP)
When an asset's carrying amount may not be recoverable, a two-step test is applied: 

Recoverability Test: Is the undiscounted future cash flows < Carrying Value?
Measurement: If yes, the impairment loss = Carrying Value - Fair Value. 

Summary Comparison
Feature     Property, Plant, & Equipment (PP&E)    Intangible Assets
Nature    Tangible (Physical)    Intangible (Non-physical)
Cost Allocation    Depreciation    Amortization (for finite-lived)
Valuation    Historical Cost (Net of Depr.)    Historical Cost (Net of Amort.)
Key Standard    ASC 360    ASC 350