3: Assets and Related Topics

Question 1

Gains and losses in an exchange with commercial substance.

Answer 1

Always recognize a gain or loss in an exchange with commercial substance. fair value- book value= G/L

Question 2

Gain where no boot is received and lacks commercial substance.

Answer 2

No gain is recognized.

Question 3

Gain where boot is paid that is less than 25% of total consideration and lacks commercial substance.

Answer 3

A proportional amount of gain will be recognized. Ratio: total boot received/ total consideration received.

Question 4

Boot paid or received in 25% or more of the total consideration.

Answer 4

Gains and losses are recognized in their entirety by both parties.

Question 5

Loss in an exchange without commercial substance.

Answer 5

Losses are recognized always in compliance with the rule of conservatism.

Question 6

IFRS nonmonetary exchanges of similar and dissimilar assets.

Answer 6

Dissimilar assets (ie: a car for a building)- Gain and loss receognized.
Similar assets (ie: a car for a car)- no gain recognized)

Question 7

Interest is capitalized for construction when and how?

Answer 7

Interest is only capitalized during the construction period. (Filing permits designates beginning). Uses the weighted average of interest rates between construction loans and general debt. Cannot exceed the actual interest incurred during that period.

Question 8

Sum of the year’s digits depreciation formula

Answer 8

Depreciation expense= (Cost-Salvage value) x Remaining life of asset/ sum of years’ digits
3 year asset would be 1+2+3= 6

Question 9

Units of production depreciation formula

Answer 9

1. (Cost-Salvage value)/ estimated units or hours= Rate per unit or hour
2. Rate x Number of units (hours) = Depreciation Expense

Question 10

Double declining balance depreciation formula

Answer 10

Depreciation expense= 2 x 1/N x (Cost - Accum Depr)

Rate is double the straight line percentage, salvage value is used as the NBV floor.