📖 长期资产：取得与资本化

Financial Statement Analysis

I. Lesson Focus

II. The Problem

A manufacturing company spends CNY 8 million to acquire new machinery. The total includes the purchase price, transportation, installation, and employee training costs required to bring the equipment to its intended usable condition. Which expenditures should be capitalized as part of the asset’s historical cost, and which should be expensed immediately? How do the different accounting treatments affect current-period net income, total assets, future depreciation expense, and the classification of cash flows on the statement of cash flows? This is one of the most frequently tested core issues in the Financial Statement Analysis section of the CFA Level I exam.

III. Definition and Classification of Long-Lived Assets

Long-lived assets are resources expected to provide economic benefits beyond one year. They are classified into two major categories: - Tangible long-lived assets (Property, Plant, and Equipment — PPE): factories, machinery, land, buildings. - Intangible long-lived assets: patents, trademarks, software, franchises.

This lesson focuses on the initial recognition and measurement (“acquisition and capitalization”) phase. Subsequent lessons address depreciation, impairment, and derecognition.

IV. Initial Measurement Principle: Historical Cost Model

Under both IFRS and US GAAP, long-lived assets are initially measured at historical cost. This includes: - Purchase price - Import duties and non-refundable taxes - Transportation costs - Installation and testing costs - Professional fees (architects, engineers) - Any other directly attributable costs necessary to bring the asset to the condition and location necessary for it to be capable of operating in the manner intended by management

Items that are expensed immediately (not capitalized): - Staff training costs - General administrative overhead - Advertising and promotional costs - Abnormal waste during normal production - Interest costs (unless they qualify for capitalization under borrowing-cost rules)

V. Capitalization of Borrowing Costs (Interest Capitalization)

When an entity borrows funds to construct or produce a qualifying asset, borrowing costs directly attributable to the acquisition, construction, or production can be capitalized as part of the asset’s cost until the asset is substantially ready for its intended use or sale.

Conditions for capitalization (IFRS and US GAAP are largely converged): 1. Expenditures on the asset have been made. 2. Borrowing costs are being incurred. 3. Activities necessary to prepare the asset for its intended use or sale are in progress.

Calculation of capitalizable interest: - Specific borrowings: actual interest incurred on that borrowing (net of any investment income on temporary investment of the funds). - General borrowings: apply the weighted-average capitalization rate to the portion of average accumulated expenditures that exceeds specific borrowings.

Formula: $$ \text{Capitalizable Interest} = \text{Weighted-Average Accumulated Expenditures} \times \text{Capitalization Rate} $$ Capitalization rate = Avoidable interest ÷ Weighted-average general borrowings outstanding (excluding specific borrowings).

Upper limit: Capitalized interest cannot exceed total interest incurred during the period.

VI. Special Treatment for Land and Buildings

• Land has an indefinite useful life and is not depreciated.
• Land improvements (fencing, parking lots, landscaping) are capitalized separately and depreciated over their finite lives.
• If an existing building on purchased land is to be demolished, its net book value plus demolition costs are added to the cost of the land, not to the cost of any new building.

VII. Subsequent Expenditures: Capitalize or Expense?

The key criterion is whether the expenditure is probable to generate future economic benefits beyond those originally anticipated.

• Capitalize: Major improvements (betterments), replacement of significant components that enhance performance or extend useful life.
• Expense: Routine repairs and maintenance, minor replacements.

IFRS emphasizes “future economic benefits,” while US GAAP focuses more on “extension of life or increase in capacity.”

Worked Cases

Case 1: Basic Capitalization versus Expensing

A company acquires a machine with the following costs (in CNY 10,000): - Invoice price: 500 - Transportation: 15 - Installation and testing: 25 - Employee training: 8 - Normal raw-material spoilage during test runs: 6 - Import duty (non-refundable): 30

Requirement: Calculate the amount to be capitalized.

Solution: Capitalized cost = 500 + 15 + 25 + 30 = 570
Training (8) and normal spoilage (6) are expensed immediately.

Financial-statement impact: - Assets are higher by 570 instead of only 500. - Current expenses are lower by 39 → higher net income in the current period. - Future depreciation base is larger.

Case 2: Borrowing-Cost Capitalization (Weighted-Average Method)

A company is constructing a factory with the following expenditures: - 1 January: CNY 2 million - 1 July: CNY 3 million - Weighted-average interest rate on general borrowings for the year: 6% - No specific borrowings

Calculation: Weighted-average accumulated expenditures = (2 × 12/12) + (3 × 6/12) = 2 + 1.5 = 3.5 million
Capitalizable interest = 3.5 × 6% = 0.21 million (CNY 210,000)

This amount is added to the cost of the factory rather than being recognized as a finance expense.

Case 3: Mixed Specific and General Borrowings

Expenditures on a production line (CNY 10,000): - 1 January: 400 financed by a specific loan at 5% - 1 July: 300 financed by general borrowings - General borrowings: two loans of 500 each at 7% and 8% - Weighted-average rate on general borrowings = (500×7% + 500×8%)/1,000 = 7.5% - Actual interest on specific loan for the year: 400 × 5% = 20

Calculation: Weighted-average accumulated expenditures = 400 + (300 × 6/12) = 550
Specific borrowing interest capitalized = 20
Excess expenditures financed by general borrowings = 150; interest = 150 × 7.5% = 11.25
Total capitalized interest = 20 + 11.25 = 31.25

Traps

Key Formulas

• Historical cost = Purchase price + Transportation + Installation + Duties + Directly attributable costs to bring asset to intended condition and location
• Capitalizable interest = Weighted-average accumulated expenditures × Capitalization rate
• Capitalization rate (general borrowings) = Total interest on general borrowings ÷ Weighted-average principal of general borrowings
• Capitalization ceases when the asset is substantially complete and ready for its intended use
• Land is not depreciated; land improvements are depreciated separately

Practice Questions

Q1. Under both IFRS and US GAAP, employee training costs incurred when acquiring a long-lived asset should be:
A. Capitalized as part of the asset cost
B. Expensed immediately
C. Capitalized as borrowing costs
D. Included in goodwill

Q2. Which of the following should not be included in the historical cost of equipment?
A. Transportation costs
B. Installation costs
C. Normal spoilage of materials during test production
D. Fees paid to professional engineers

Q3. A company incurs CNY 3 million on 1 January and CNY 4 million on 1 July to construct a qualifying asset. The weighted-average interest rate on general borrowings is 6%. Assuming no specific borrowings, the amount of interest that can be capitalized for the year is closest to:
A. CNY 180,000
B. CNY 300,000
C. CNY 420,000
D. CNY 210,000

Q4. Which statement concerning the capitalization of borrowing costs is correct?
A. All borrowing costs may be capitalized
B. Only interest on specific borrowings may be capitalized
C. Capitalization continues from acquisition date until disposal
D. Capitalization stops when the asset is substantially ready for its intended use

Q5. Land improvements such as parking lots and fencing should be:
A. Added to the cost of land and not depreciated
B. Capitalized separately and depreciated over their useful lives
C. Expensed immediately
D. Recorded as an extraordinary loss

Q6. A company uses general borrowings to construct a qualifying asset. Average accumulated expenditures are CNY 5 million and the weighted-average interest rate on general borrowings is 7%. Total interest incurred during the period is CNY 800,000. The amount of interest that can be capitalized is:
A. CNY 350,000
B. CNY 800,000
C. CNY 450,000
D. CNY 0

Q7. Which of the following statements about subsequent expenditures is incorrect?
A. Routine maintenance is usually expensed
B. Major improvements that extend useful life should be capitalized
C. All subsequent expenditures must be expensed
D. Replacement of a major component that increases capacity may be capitalized

Q8. When calculating the capitalization rate for general borrowings, an analyst should use:
A. The highest interest rate
B. The lowest interest rate
C. The weighted-average interest rate
D. The benchmark rate plus a risk premium

Answers

Takeaways

• Long-lived assets are initially measured at historical cost; all directly attributable expenditures required to bring the asset to the location and condition necessary for it to operate as intended are capitalized.
• Employee training, general overhead, advertising, and normal waste are always expensed.
• The core of interest capitalization is “weighted-average accumulated expenditures × capitalization rate”; capitalization stops when the asset is substantially ready for intended use.
• Land is never depreciated; land improvements are capitalized and depreciated separately.
• Subsequent expenditures are capitalized only when they are probable to increase future economic benefits or extend useful life.
• Capitalized borrowing costs cannot exceed total interest incurred in the period — this ceiling rule is critical.