The adjustment labeled “ Capitalized interest” relates to the interest that is not expensed but instead is capitalized under Country A GAP. The adjustment labeled “ Depreciation related to capitalized interest” relates to the depreciation of the interest that was capitalized as part of the cost of the asset. B. The first adjustment increases income because interest is not being expensed immediately but instead is capitalized as part of the cost of the asset to which it relates.
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The second adjustment decreases income because under Country A GAP, the asset to which interest is capitalized has a larger cost and therefore a larger depreciation expense. C. 80th income adjustments are closed out to retained earnings and partially offset one another. The increase to income of $50 and the decrease of $20 result in a net increase in retained earnings of $30. 3. Fixed Assets a. When fixed assets are revalued to a higher amount, there is an increase in their carrying value with an offsetting increase in stockholders’ equity to keep the balance sheet in balance.
The amount by which the assets are revalued is subject to depreciation, which results in a larger depreciation expense. The adjustment to recognize this additional depreciation expense decreases income under Country B GAP. It also decreases stockholders’ equity (retained earnings). The decrease in retained earnings from additional depreciation is smaller than the increase in stockholders’ equity from revaluation of assets, which results in a net increase in stockholders’ equity. Note: if we knew when the fixed assets were revalued, we could determine the amount by which they were revalued.
For example, if revaluation occurred at the end of the previous year, then the revaluation amount must have been $64 ($64 – 8 = $56) because only one year of additional deprecation would be included in the stockholders’ equity adjustment. 27. Holler Company – Property, Plant, and Equipment (capitalization of rowing costs and measurement of asset subset . NET to acquisition using two alternative models) AS 16 Cost Model Carry asset on the balance sheet at cost less accumulated depreciation and any accumulated impairment losses.