Contabilidad intermedia

Glossary—Chapter 10
additions Increase or extension of existing assets, such as adding a wing to a hospital. Companies capitalize any addition to plant assets because a new asset is created. (p. 576). avoidable interest The amount of interest cost in a period that a company could theoretically avoid if it had not made expenditures for an asset. When a company capitalizes interest expense, theamount of interest to capitalize is limited to the lower of actual interest cost incurred during the period or the amount of avoidable interest. (p. 560). capital expenditure Expenditure whose purpose is to create a new asset or to increase an asset’s future benefits. Such expenditures are to be capitalized, rather than expensed. (p. 575). capitalization period The period of time during which acompany must capitalize interest. The period lasts for as long as three conditions are present: expenditures for the asset have been made, activities needed to prepare the asset for its intended use are in progress, and interest cost is being incurred. (p. 560). commercial substance In accounting for exchanges of nonmonetary assets, the basis for measuring the gain or loss on an exchange. If thefuture cash flows change (if the two parties’ economic positions change) as a result of the transaction, the transaction is said to have commercial substance, and the parties to the exchange recognize a gain or loss on the exchange. (p. 568). fixed assets Assets of a durable nature used in the regular operations of a business. Also called property, plant, and equipment and plant assets. (p. 556).historical cost The cash or cash equivalent price of obtaining an asset and bringing it to the location and condition necessary for its intended use. Most companies use historical cost as the basis for valuing property, plant, and equipment. Historical cost typically includes the purchase price, freight costs, sales taxes, installation costs, and any related costs incurred after the asset’s acquisition(such as additions or improvements) if they provide future service potential. Historical cost is allocated to future periods through depreciation. (p. 556). improvements (betterments) The substitution of a better asset for the one currently used (say, a concrete floor in a factory for a wooden floor). If the expenditure for an improvement increases future service potential of an asset, thecompany capitalizes the cost of the improvement. (p. 576). involuntary conversion The termination of an asset’s service as a result of some type of unwanted or unexpected event, such as fire, flood, theft, or condemnation. Companies report the difference between the amount recovered from the involuntary conversion, if any, and the asset’s book value as a gain or loss. In rare cases, these gains orlosses are reported as extraordinary items in the income statement. (p. 579). lump-sum price A single amount paid for a group of plant assets. To determine the cost for the individual assets acquired in a lump-sum purchase, the company allocates the total cost among the various assets on the basis of their relative fair values. (p. 566). major repairs Significant expenditures, such as an overhaul,whose purpose it to maintain assets in operating condition. Several periods benefit from major repairs, and companies should depreciate the cost of such repairs as they would the costs for an addition, improvement, or replacement. (p. 577). nonmonetary assets Fixed assets such as property, plant, and equipment. Ordinarily, companies account for the exchange of nonmonetary assets by recognizingimmediately any gains or losses on the exchange, using the fair value of the asset given up or the fair value of the asset received, whichever is clearly more evident. The accounting for exchanges of nonmonetary assets with a gain involves assessing whether the transaction has commercial substance. (p. 568). nonreciprocal transfers Contributions (donations or gifts of cash, securities, land, buildings,...