Book 3_FinAn_READING-35_ANALYSIS-OF-LONG-TERM-ASSETS

Question 1

The cost of a purchased finite-lived intangible asset

Answer 1

amortized over its useful life

Question 2

Indefinite-lived intangible assets

Answer 2

are not amortized, but they are tested for impairment at least annually

Question 3

The cost of internally developed intangible assets

Answer 3

expensed.

Question 4

R&D cost

Answer 4

Under IFRS: Development cost capitalzied
US GAAP: all expensed, except in the case of software

Question 5

Assets acquired in a business combination

Answer 5

The acquisition method

Question 6

The purchase price

Answer 6

is allocated to the fair value of identifiable assets of the acquired firm less its liabilities

Question 7

goodwill

Answer 7

Any excess of the purchase price above the fair value of the acquired firm’s net assets

Question 8

an unidentifiable intangible asset

Answer 8

cannot be separated from the business itself.

Question 9

Impairtment under IFRS

Answer 9

• Under IFRS, an asset is impaired when its carrying value exceeds the recoverable amount
• the asset is written down to the recoverable amount
• Loss recoveries are permitted, but not above historical cost.

Question 10

The recoverable amount

Answer 10

the greater of fair value less selling costs and the value in use (present value of expected cash flows)

Question 11

Impairtment under US GAAP

Answer 11

• an asset is impaired if its carrying value is greater than the asset’s undiscounted future cash flows
• the asset is written down to its fair value
• Subsequent recoveries are not allowed for assets held for use.

Question 12

Intangible Assets With Indefinite Lives

Answer 12

tested for impairment at least annually

Question 13

Long-Lived Assets Held for Sale

Answer 13

• No longer depreciated or amortized
• The loss can be reversed under IFRS and U.S. GAAP if the value of the asset recovers in the future

Question 14

If a long-lived asset is exchanged for another asset

Answer 14

a gain or loss is computed by comparing the carrying value of the old asset with fair value of the old asset (or fair value of the new asset, if more clearly evident).

Question 15

A spinoff

Answer 15

• the transfer of assets that constitute an entire division or subsidiary into a new legal entity-
  No profit or loss is recorded on the disposal in the income statement.

Question 16

The gain or loss on an asset’s exchange

Answer 16

• Difference between the fair value of the asset that has been disposed of and the carrying value of the disposed asset
• The new asset should be recorded in the balance sheet at the fair value of the asset disposed
• No fair value, use the carrying value

Question 17

the disclosure requirements for long-lived assets

Answer 17

• Carrying values for each class of asset
• Accumulated depreciation and amortization
• Title restrictions and assets pledged as collateral
• For impaired assets, the loss amount and the circumstances that caused the loss
• For revalued assets (IFRS only), the revaluation date, how fair value was determined, and the carrying value using the historical cost model

Question 18

Average age estimation

Answer 18

= Acc depreciation/annual depreciation

Question 19

Total useful life

Answer 19

= Historial cost/annual depreciation

Question 20

Remaining useful life

Answer 20

= Ending net PE/annual depreciation

Question 21

Recording PPE under acquistion

Answer 21

should capitalize any identifiable internally generated intangibles.