To: President, Tenth National Bank
From: Lebisa Morales, Accountant
Subject: Property, Plant, and Equipment: Determination of Costs
Mr. President, In the case of the shopping mall acquired through foreclosure I have several points to make:
Because the asset is not acquired for use, FASB 360-1-30-1 which states that “the historical cost of acquiring an asset includes the costs necessarily incurred to bring it to the condition and location necessary for its intended use” does not apply.
It could be argued that, as per FASB 360-10-55-42, when an entity intends to sell a foreclosed property and “becomes aware of environmental damage requiring remediation” it no longer is considered as held for sale, but it must be treated as held for use until the remediation is complete.
Unless, the discovery was made after the entity has a buyer in place but has not completed the sale. FASB 360-10-55-47 states that in such cases, the asset may still be considered as held for sale.
Because the bank discovered the asbestos problem prior to the sale of the mall to a real estate company, it may still be considered as held for sale at the time the cost is incurred.
In the case of a held for sale property, FASB 410-30-25-18c states that environmental treatment costs may be capitalized if “[T]he costs are incurred in preparing for sale that property currently held for sale.”
Lastly, FASB 310-40-40-8 states that in the case of a sale of an asset from a troubled debt restructuring (foreclosure), any difference “between the amount of the new receivable and the carrying amount of the assets sold is a gain or loss on sale of assets.”
It is my assessment that the $1 million cost incurred in the removal of asbestos from the shopping mall would be capitalized, affecting the carrying value of the asset and the resulting gain or loss from the sale recognized as such on the income statement.
In the case of the building purchased for the purposed of moving
References: FASB Codification. (2014). Property, Plant, and Equipment. RIA Checkpoint: Thomson Reuters/Tax & Accounting. Retrieved on March 8, 2014. FASB Codification. (2014). Asset Retirement and Environmental Obligations. RIA Checkpoint: Thomson Reuters/Tax & Accounting. Retrieved on March 8, 2014. FASB Codification. (2014). Sale of Assets from a Troubled Debt Restructuring. RIA Checkpoint: Thomson Reuters/Tax & Accounting. Retrieved on March 8, 2014.