Question

Describe how the following affect the valuation of PPE.

a) Cash Discounts

b) Deferred Payment Contracts

Answer 1

a) cash discounts - the asset should be recorded at the current cash equivalent price to acquire the asset at the date of acquistion. It is preferable to exclude the cash discount from the recorded cost of the asset whether the discount is taken or not. Any discount not taken should be recorded as an expense

b) deferred payments contracts - assets purchased on long term credit contracts should be accounted for at the present value of the consideration exchanged when no interest rate is stated or if the specified rate is unreasonable an appropriate rate should be imputed