PPE on the balance sheet: initial costs, land vs land improvements, later expenditures, and interest

The rules, one page each

1. Which Equipment Costs Are Capitalized Under US GAAP?Sort it

   Capitalize the price net of trade discounts and cash discounts taken, plus costs to bring equipment to the location and condition for intended use. Expense training and routine maintenance; record prepaid maintenance separately from equipment.

2. Land vs. Land Improvements: Demolition and Building CostsSort it

   Capitalize land acquisition and permanent preparation costs to Land; capitalize finite-life site improvements and building construction separately. If an acquired structure has no intended use except demolition, add the full property price and net demolition to Land.

3. Repairs vs. Improvements: Capitalize or Expense PPE CostsStep by step

   Capitalize subsequent PPE costs that extend useful life, increase capacity, or materially improve efficiency. Expense costs that only maintain or restore the asset's previously assessed service potential.

4. Replacing major components and overhauls: derecognition and new depreciationWorked example

   For a replacement of a separately identifiable component, capitalize the new component and derecognize the old component’s historical cost and accumulated depreciation (or the carrying amount if known). For capitalized overhauls or improvements that extend useful life or increase capacity, add the cost and revise depreciation prospectively.

5. Capitalized interest on self‑constructed assets: WAAE, rates, and the capitalization periodWorked example

   Capitalize interest for qualifying assets only during the capitalization period, which begins when expenditures are made, activities to ready the asset are in progress, and interest cost is being incurred; suspend for extended interruptions and stop when the asset is ready for intended use. Compute avoidable interest by applying the specific borrowing rate to WAAE up to the specific loan amount and the weighted‑average rate on other borrowings to any excess, limited to actual interest incurred.