capital improvements

Examples of capital improvements in the following topics:

• Cost of Improvements

  • The cost of an asset improvement is capitalized and added to the asset's historical cost on the balance sheet.
  • Asset or capital improvements are undertaken to enhance or improve a business asset that is in use.
  • The cost of the improvement is capitalized and added to the asset's historical cost on the balance sheet.
  • If the capital improvement is financed, the interest cost associated with the improvement should not be capitalized as an addition to the asset's historical cost.
  • When the cost of a capital improvement is capitalized, the asset's historical cost increases and periodic depreciation expense will increase.

• Valuing Repairs, Maintenance, and Additions

  • Betterments or improvements to existing plant assets are capital expenditures because they increase the quality of services obtained from the asset.
  • If an expenditure that should be expensed is capitalized, the effects are more significant.
  • The company capitalized the USD 6,000 that should have been charged to repairs expense in 2010.
  • Asset additions/improvements are capitalized to their respective asset accounts on the balance sheet at the market value of the addition.
  • Explain what a capital expenditure is and how a company would account for it.

• Overview of Lease Accounting

  • There are two types of leases capital leases and operating leases.
  • Capital equipment is financed either with debt or equity.
  • To that end, a capital lease must be recorded as liability on the company's balance sheet, it is important to note that the IRS treats capital leases as a liability.
  • The value of the leasehold improvements should be capitalized and depreciated over the lesser of the lease life or the leasehold improvements life.
  • If the life of the leasehold improvement extends past the life of the initial term of the lease and into an option period, normally that option period must be considered part of the life of the lease.

• Reporting R&D Cost

  • Expense R&D, unless items have alternative future uses, then allocate as consumed, or capitalize and depreciate as used.
  • A cost which cannot be deducted in the year in which it is paid or incurred must be capitalized.
  • The general rule is that if the acquired property's useful life is longer than the taxable year, then the cost must be capitalized.
  • The capital expenditure costs are then amortized or depreciated over the life of the asset.
  • For example, routine ongoing efforts to refine, enrich, or improve the qualities of an existing product are not considered R&D activities.

• Analyzing Intangible Assets

  • Some costs with respect to intangible assets must be capitalized rather than treated as deductible expenses.
  • For example, an amount paid to obtain a trademark must be capitalized.
  • Certain amounts paid to facilitate these transactions are also capitalized.
  • The regulations contain many provisions intended to make it easier to determine when capitalization is required.
  • Many businesses spend considerable sums of money on research and development to create new products or processes, improve present products, and discover new knowledge that may be valuable.

• Working Capital Management Analysis

  • Along with fixed assets, such as property, plant, and equipment, working capital is considered a part of operating capital.
  • If current assets are less than current liabilities, an entity has a working capital deficiency, also called a working capital deficit.
  • Decisions relating to working capital and short term financing are referred to as working capital management.
  • Profitability can be evaluated by looking at return on capital (ROC).
  • Identify working capital and discuss how a company would use it

• Standard-Setting Groups: SEC, AICPA, and FASB

  • The FASB's mission is "to establish and improve standards of financial accounting and reporting for the guidance and education of the public, including issuers, auditors, and users of financial information. "
  • Consider promptly any significant areas of deficiency in financial reporting that might be improved through standard setting.
  • Promote international convergence of accounting standards concurrent with improving the quality of financial reporting.
  • Quarterly and bi-annual reports from public companies are crucial for investors to make sound decisions in the capital markets.

• Differences Between GAAP and IFRS and Implications of Potential Convergence

  • Development costs — These costs can be capitalized under IFRS if certain criteria are met, while it is considered as "expenses" under U.S.
  • For example, in 2006 senior partners at PricewaterhouseCoopers (PwC) called for convergence to be "shelved indefinitely" in a draft paper, calling for the IASB to focus instead on improving its own set of standards.

• What Is R&D?

  • Under both models, R&D differs from the vast majority of a company's activities which are intended to yield nearly immediate profits or immediate improvements in operations and involve little uncertainty as to the return on investment (ROI).
  • Prior to 1975, businesses often capitalized research and development costs as intangible assets when future benefits were expected from their incurrence.
  • Other companies capitalized those costs that related to proven products and expensed the rest as incurred.

• Accounting Perspectives on Long-Lived Assets

  • All money that is spent to get the asset up and running is capitalized as part as the cost of the asset.
  • The basic rule here is that—when recognizing the asset is allowed—all money that is spent to get the asset up and running is capitalized as part as the cost of the asset.
  • Items that can be capitalized when the firm purchases a machine include the machine itself, transportation, getting the machine in place, fees paid for having the machine installed and tested, the cost of a trial run, and alike.
  • Examples that are excluded from the asset, and consequently are expense rather than capital costs, include the training of personnel to learn how to use the machine, unexpected damages while installing the machine, or the drinks and snacks to celebrate the machine's successful launch.
  • Items spent to get the asset up and running is capitalized as part as the cost of the asset.