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acct 262 > chapter 9 > Flashcards

chapter 9 Flashcards

1
Q

what are capital assets?

A

PPE also known as fixed assets

– physical asset that creates income/ revenue over more than one accounting period

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2
Q

characteristics of ppe

A
  • non- current assets used in operation to generate revenue
  • useful life more than one accounting period
  • they are tangible (physical) or intangible ( drilling rights )
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3
Q

Three steps in accounting for ppe

A

acquisition (cost)
use
disposal

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4
Q

cost of ppe

A

recorded at cost which include normal or reasonable expenditures necessary to get the asset ready to use
ex: - invoice price less trade discount - freight / unpacking/ assembling charge and labour charges included within these -non refundable sales tax PST -installation and testing

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5
Q

betterments

A

costs of PPE that provide material benefits extending beyond the accounting period
** REPORTED UNDER PPE
ex; plant expansions, overhauls and additions

NOT REPAIRS OR MAINTANENCE, THESE ARE EXPENSED

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6
Q

repairs/ maintenance

A

costs to maintain asset
* do not materially increase the assets life ( materially- materiality principle)
they are EXPENSES** AND THEREFORE REPORTED ON THE INCOME STATEMENT

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7
Q

Land costs

A
  • does not depreciate
    costs: -purchase price, legal fees, real estate commisions, accrued property tax, surveying/grading, draining and clearing, government assessments

cost of removing building ( ? review)

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8
Q

Land improvements

A
  • Increase usefulness and may have limited life – cost is charged to ppe and the cost is allocated over the period they benefit
    ex: parking lot/ fences/ landscaping
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9
Q

buildings

A

cost includes all expenditures to make ready for use - * costs DEPRECIATED over period they benefit

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10
Q

leasehold improvements

A
  • cost of alterations/ improvements to leased property

- costs depreciated over the life of the lease or the life of the improvements (whichever is shorter)

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11
Q

Machinery/ equipment

A
  • costs depreciated over a period they benefit

- cost of machinery / equipment includes all of the costs to get ready for use ( same as building)

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12
Q

damaged a piece of equip when getting ready for use, is this included in cost of equip or is it expenses?

A

it is expensed because it is not a usual- NORMAL cost to getting the equipment ready for use

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13
Q

fob shipping point

A

buyer pays shipping cost

* transfer of ownership occurs at sellers warehouse to buyer

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14
Q

fob destination

A

seller pays shipping cost

* transfer of ownership occurs at buyers warehouse

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15
Q

lump sum asset purchase

A

PPE purchased in group with one lump sum price and the cost is allocated to ppe based on the relative values – these values are estimated on individual assts

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16
Q

lump sum asset purchase table

A

PPE asset, appraised value, ratio of individual appraisal to total appraised value, cost allocation

17
Q

how to use lump sum asset purchase table

A
  • appraised value is given
  • ratio: divide appraised value by total appraisal to give you percentage (20%)
  • cost allocation: multiply % by total cost PPE ( amount that you actually paid
18
Q

journal entry

A 
Land
Building
Equipment
tools 
                cash (if paid partially by cash) 
                notes payable
19
Q

what is depreciation

A

match/ allocating cost of an asset over assets useful life.

  • does not measure the decline in market value of an asset
  • start recording depreciation when asset starts being used
  • *COST MATCHED TO REVENUE ( matching principle)
20
Q

factors in determining depreciation

A
  1. cost
  2. estimated residual value
  3. estimated useful life
21
Q

Methods for calculating depreciation

A
  1. straight line
  2. units of production
  3. estimated useful life
22
Q

straight line depreciation method

A

cost - estimated residual value

estimated useful life

23
Q

book value

A

Value of the ppe less accumulated depreciation - it is the amount thats recorded on the balance sheet.

24
Q

straight line depreciation facts (3)

A
  • the expense is the same for each period
  • acc dep = sum of all dec expenses
  • the book value declines until it reaches the residual value
25
Q

market value

A

NOT RELATED IN ANY WAY TO DEPRECIATION

26
Q

units of production

A

assets use varies greatly between periods so you expense the depreciation based on the usage of the asset

27
Q

steps to calculate units of production depreciation

A
  1. dep per unit= cost -residual value over total estimated units of product
  2. anual depreciation expense = de per unit x amount produced
28
Q

residual value

A

you do not depreciate past residual value

29
Q

Declining balance method

A

higher depreciation in the early years of the assets life and lower charges in the later years, the rate is up to twice the straight line rate and applied to the book value
-as book value declines so does the amount of depreciation because you apply the rate to the book value

30
Q

steps for calculating double declining

A
  1. calculate the DOUBLE DECLINING BALANCE RATE:
    2/ estimated years of useful life
  2. dep exp: multiply RATE by beginning of period book value
    dep exp= rate x book value
  • dont use residual value in the calculations.
31
Q

partial year depreciation

A
  1. nearest whole month, round to the nearest month

2. half year 1/12 used regardless of when in the year it was purchased

32
Q

revising depreciation;

A

change in residual value, useful life, or betterments

33
Q

revising depreciation when there’s a change in residual value or estimated useful life

A
  • do not change previous years
    revised depreciation for remaining years=
    current book value- revised residual value divided by REMAINING useful life
34
Q

impairment

A

loss when book value is greater than fair value(recoverable amount through use or sale)

causes: decrease in market value, technological, economic, and legal factors.
1. record loss 2. revise future depreciation

35
Q

how to record impairment loss

A

dr impairment loss

cr equipment

36
Q

Disposal of asses

A

from: obsolescence, wear and rear, damage or a change in business plans.

  1. record depreciation expense up to the date of disposal dr dep exp, cr acc dep
  2. compare book value with amount received and record gain or loss
  3. remove balance of asset and acc dep
  4. record cash of new assets
37
Q

how to determine gain or loss of disposal

A

gain/loss= cash/ amount received - book value

negative=loss positive=gain

38
Q

entry for disposal of asset

A 
dr cash
dr acc dep
dr loss 
         cr equipment
         or cr gain
39
Q

intangible assets

A
  • have future economic benefit
  • recorded at cost and cost is AMORTIZED over its useful life using straight-line depreciation method **recorded separate from ppe

acct 262 (8 decks)

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