Identify the conditions under which it would be appropriate to treat a cost as a loss.Explain the underlying rationale for recognizing expenses on the basis of systematic and rational allocation of asset cost. Some expenses are assigned to specific accounting periods on the basis of systematic and rational allocation of asset cost.In what general circumstances would it be appropriate to treat a cost as an asset instead of as an expense?.What is the rationale underlying the appropriateness of treating costs as expenses of a period instead of assigning the costs to an asset? Explain.Explain the rationale for recognizing costs as expenses at the time of product sale.In other situations, guidelines have been developed for recognizing costs as expenses or losses by other criteria.Instructions In some situations, costs are recognized as expenses at the time of product sale.
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The amount of earnings reported for a business entity is dependent on the proper recognition, in general, of revenues and expenses for a given time period. Question: An accountant must be familiar with the concepts involved in determining earnings of a business entity. Would it be preferable to amortize the cost of display houses on the basis of (1) the passage of time or (2) the number of shell houses sold? Explain.A choice must be made between (1) expensing the costs of sample display houses in the periods in which the expenditure is made and (2) spreading the costs over more than one period.Sample display houses have little salvage value because dismantling and moving costs amount to nearly as much as the cost of an unassembled package.Instructions Old sample models are torn down or altered into new models every 3 to 7 years. The chief element of cost of display houses is the unassembled packages, in as much as erection is a short, low-cost operation.
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Sample display houses are erected at a total cost of \(30,000 to \)40,000 including the cost of the unassembled packages.
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Upon commencing operations in a new area, Barenboim buys or leases land as a site for its local warehouse, field office, and display houses. The Idea: GAAP, developed by FASB to furnish investors with dependable data and boost uniformity in financial statements, stands for Generally Accepted Accounting Principles. Shell houses are sold chiefly to customers who are handy with tools and who have time to do the interior wiring, plumbing, wall completion and finishing, and other work necessary to make the shell houses liveable dwellings.Barenboim buys shell houses from a manufacturer in unassembled packages consisting of all lumber, roofing, doors, windows and similar materials necessary to complete a shell house. Question: Daniel Barenboim sells and erects shell houses, that is, frame structures that are completely finished on the outside but are unfinished on the inside except for flooring, partition studding, and ceiling joists.