10 PP&E

Question 1

What depreciation method does not use salvage value?

Answer 1

Double-declining balance

Question 2

List the non accelerated methods of depreciation.

Answer 2

Straight-line method
Service hours method
Units of output method

Question 3

Define “book value.”

Answer 3

Original cost less accumulated depreciation to date

Question 4

What type of allocation is depreciation considered?

Answer 4

Systematic and rational allocation of capitalized asset cost to time periods

Question 5

How do we calculate the annual straight-line depreciation amount of an asset?

Answer 5

(Cost − Salvage value) / Useful life

Question 6

Define “depletion.”

Answer 6

Refers to the allocation of the cost of the natural resource to inventory

Question 7

What costs are included in the full costing method for exploration costs?

Answer 7

All costs of exploring for the resource are capitalized to the natural resources account.

Question 8

What costs are included in the successful efforts method for exploration costs?

Answer 8

Only the costs of successful exploration efforts are capitalized to the natural resources account.

Question 9

List the type of costs capitalized for natural resources.

Answer 9

Acquisition
Exploration
Development

Question 10

What interest rates should be used to determine capitalized interest?

Answer 10

The average interest rate during period or the specific interest rate applicable to construction debt

Question 11

List the conditions that must exist to capitalize interest.

Answer 11

Qualifying expenditures have been made.
Construction is proceeding.
Interest cost is being incurred.

Question 12

List the components of capitalized costs of self-constructed assets.

Answer 12

Labor
Material
Overhead
Interest cost

Question 13

What is the general rule for capitalizing expenditures?

Answer 13

Capitalize all expenditures necessary to bring the plant asset to its intended condition and location.

Question 14

List the general rules on costs to capitalize.

Answer 14

Cash equivalent price
Get-ready costs

Question 15

What are the two allowed methods to compute total interest to be capitalized?

Answer 15

Weighted average method
Specific method

Question 16

What is the general rule on when to capitalize post acquisition expenditures?

Answer 16

Capitalize the expenditures if the asset becomes more productive or if the expenditure extend the asset’s life.

Question 17

If weighted average accumulated expenditures (WAAE) < total interest-bearing debt, what is interest expense for the period?

Answer 17

The difference between total interest cost and the amount of interest capitalized

Question 18

If weighted average accumulated expenditures (WAAE) > total interest-bearing debt, what is the interest expense for the period?

Answer 18

All interest cost is capitalized, and there is no reported interest expense for the period.

Question 19

List the two-step process involved in computing capitalized interest.

Answer 19

Compute the weighted average accumulated expenditure.
Apply the appropriate interest rate(s).

Question 20

List some examples of natural resources.

Answer 20

Gravel pits
Coal mines
Tracts of timber land
Oil wells, and others

Question 21

When are unpaid construction input costs included in weighted average accumulated expenditures (WAAE)?

Answer 21

Not until cash is paid

Question 22

List the requirements for inclusion in plant assets.

Answer 22

Currently used in operations
Have a useful life extending beyond one year
Have physical substance

Question 23

Define “get ready costs.”

Answer 23

All costs incurred to get the asset on the company’s premises and ready for use

Question 24

How do we calculate the rate used in double declining balance?

Answer 24

Straight-line rate: Number of years divided into 1 (i.e., if 5 years, 1 / 5 = 20%).
Twice the straight-line rate: 20% × 2 = 40%

Question 25

How is the price for group purchases recorded?

Answer 25

Total price is allocated to individual assets.

Question 26

What is the general test for impairment?

Answer 26

Book value > Recoverable cost

Question 27

List the impairment tests for assets in use.

Answer 27

Sum net future cash flows from asset (recoverable cost)
If sum > book value, no impairment
If sum < book value, impairment

Question 28

How is the amount of impairment loss on asset in use determined?

Answer 28

The amount by which the carrying value of the asset exceeds its market value

Question 29

Define “qualifying assets” for interest capitalization.

Answer 29

Assets constructed for an enterprise’s own use or assets intended for sale or lease that are constructed as discrete projects

Question 30

Define “avoidable interest.”

Answer 30

The amount of interest that would have been avoided had the construction not taken place

Question 31

How do land improvements differ from land?

Answer 31

Land improvements differ from land in that the improvements have a finite useful life and are depreciated.