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ACCT 217 > Class notes-Ch9 > Flashcards

Class notes-Ch9 Flashcards

1
Q

what are PPE (2 classificaitons)

A

-long lived resoources that are:
a) controlled by company
b) tangible
c) used in the operations of a business
d) are not intended for sale to customers

-provide economic benefits over many years

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2
Q

is ownership requried of ppe to report it in the sofp?

A

not really! if it is controlled by the company it is reported on sofp (leased assets)

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3
Q

at what price is the ppe recorded?

A

recorded at their cost!! but things are included in cost

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4
Q

what does the cost of ppe include

A

1) purchase price (including non refundable taxes and duties- discounts or rebates)
2) expenditures neccessary to bring asset to its intended location and for its inteneded use
3) estimated cost of future expenses needed to dismantle it/remove it/resotre it at end of its useful life

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5
Q

what are the classes of ppe

A

land, land improvements, builidings, equipment

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6
Q

what does the cost of land include

A

1) purchase price
2) closing costs (costs of various paperwork)
3) additional costs needed to prepare land for its intended use (-any proceeds from salvage)

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7
Q

what is salvage

A

any amount of benefits that can be recieved from the land

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8
Q

what is the life of land

A

unlimited life!!

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9
Q

is land deprecaited

A

no!! because land can not be used up so no depreciation

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10
Q

is land and land improvement the same class of ppe

A

no!! separate

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11
Q

what is land improvements clas

A

cost of structural additiions made to aproperty (fencing, paving, sidewalks)

-> does not include cosots of getting the land ready for use

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12
Q

why is land improvements a separate class

A

because these improvements decline in service potential over time!! there is depreciation

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13
Q

builidings class ppe

A

all expenses related to purchase or construction of a buildiing

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14
Q

building class 2 scenarios- what are the costs included in each scenario?

A

1) building is purchase:
-purchase price
-closing costs (legal fees)
-costs ready to make building ready for its intended use

2) buildiing is constructed
-contract price
-architect fee
-builidng permits
-excavation cost
-INTEREST COSTS DURING CONSTRUCTION

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15
Q

where do you include interest costs gained during construction?

A

in builidng cost!!!! not INTEREST EXPENSE!!

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16
Q

Equipment PPE class
-what are costs included

A

purchase price
freight charges, sales tax, cost of insurance
assembling
installing / testing

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17
Q

different between operating expenses and capital expense

A

operating expenes: benefit only the current period, and required to maintain asset in normal operating condition

capital expenses: capitalized as asset (increases the cost of the asset), increases the life of an asset, its productivity, or efficiency

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18
Q
A
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19
Q

advantages of leasing

A

-little or no down payment
-less risk of obsolescence
-cash outlays for asset
-100% financing
-income tax advantages

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20
Q

what is the lessor

A

owner of asset for lease (landlord)

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21
Q

what is the lessee

A

party leasing asset from the owenr

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22
Q

IFRS lease rules
-who is lease an asset for
-EXCEPTIONS:
when is lease treated as a period expense (2 scenarios)

A

-since risk and reward transferred to lessee even if legal title not passed, its reported as right of use asset (liabilities also transferred)

-lease terms of <12 mos, leases for low value assets

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23
Q

ASPE lease rules
-what are the two types of leases

A

capital lease

operating lease

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24
Q

1: capital lease

ASPE: two types of elases

A

all benefits and risks of ownership are transferred from lessor to lease

lessee required to record leased asset and related liability at present value of minimuum lease pauyments

LEGAL TITLE STAYS WITH THE LESSOR, BUT THE LESSEE IS REQURIED TO RECORD THE LEASED EQUIPMENT!!

REPORTED ON SOFP

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25
Q

2: operatin glease

aspe two types of leases:

A

benefits and risks not transferred to lessee

lease rental payments recorded as expense by lessee and as revenue by lessor

ONLY ON SOI

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26
Q

WHAT IS DEPRECIATION

A

ALLOCATING cost of ppe over the assets useful life

-> it is a process of alllocating cost to an asset NOT DETERMINING AN ASSETS CURRENT VALUE!!

->THIS IS A NON-CASH EXPENSE!! does not use or provide cash

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27
Q

what are factors in calculating depreciation

A

1) cost
purchase price +costs required to get asset ready for use +estimated asset retirement costs

2) useful ife
time period that the asset is expected to be available for use OR the number of units that the asset is expected to orduce/units of output expected

3) residual value
estimated amount to be received from the disposal at the end of the assets useful life

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28
Q

3 ways to calculate depreciation

A

1) straight line
2) diminishing balance
3) untis of productionw

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29
Q

what is the best deprecaiton method

A

the method that best reflects the pattern of use of the economic benefits from that asset

30
Q

how to calculate straight line rate

A

100% / # useful life in years = % per year

31
Q

how to use the straight line method

A

cost- residual value= depreciable amount

depreciable amount / useful life= depreciation expense

32
Q

what is the diminishing balance method

A

produces a decreasing annual depreciation expense over an assets useful life
-> deprecaition is calculate based on carryign amount, and that declines yearly

Annual depreciation expense is calculated by multiplying the carryina mount at the befinninf year by the depreiation rate

33
Q

is residual value included in diniminghing balance method

A

no!!!

34
Q

formula for diminishing balance method

A

carrying amount at the beginning of the year x Depreciation rate = depreciaiton expense

depreciation rate= (Straight line rate x Multiplier)
carrying amount= cost- deprecaition expense

35
Q

units of production method

A

useful life in relation to total units producable

cost-residual value= depreciable amt

depreciable amt/estim total units of prod= depr rate per unit

depr rate per unit * units of production during year= depr expense

36
Q

comparing the different depreciation methods- Straight line depreciation
-describe it
-WHAT IS JE

A

SL depreciation:
-simplest, the depreciation expense is constant over the useful life of the asset
-Depreciaiton expense= (cost-residual value)/useful life
NOTE: (cost-residual value)=depreciable amount

JE:
Dr Depreciation Expense
Cr Accumulated Depreciation

37
Q

comparing the different depreciation methods- diminishing balance depreciaiton

A

DB depreciation:

Depreication Expense= (cost-accumulated depreciation) * STRAIGHT LINE DEPRECIATION RATE * MULTIPLIER

NOTE: BEGINNING OF YEAR CARRYING VALUE=(cost-accumulated depreciation)

BASICALLY as the years go on, plug in depreciation expense into accumulated depreciation (REference old formulas)

38
Q

comparing the different depreciation methods- units of production depreciaiton

A

cost-residual value= depreciable amount

depreciable amount / estimated total units of production = depreciation rate per unit

depreciation rate per unit * units of production during the year = depreciation expense

39
Q

when do we revise depreciaition?

when do we make these changes

A

-change in estim useful life/resid value
-capital expense/addition during useful life
-impairment
-change in how economic beenfit of asset is consumed

the changes are made to future eyars not past

40
Q

what are some issues that can arise with depreciation

A

a need to revise depreciation!!!

a need to record asset impairments

accounting for natural resources

41
Q

when is revising depreication needed?

A

1) change in estiamted useful life or residual value
2) capital expenditures (additions) during useful life
3) impairment
4) change in the pattern in which the assets economic benefits are consumed

42
Q

how are revisions in depreciation made?

A

accounted for as a change in the ESTIMATES!!!

->changes are made in current years and future years!! do not touch past predictions baby girlllll

43
Q

what is asset impairments

A

when carry amount of asset> fair value

this difference is a loss that must be recorded

-you must test for impairment regularly

44
Q

when do asset impairments happen
-example
-Journal entry

A

when carryign amount of asset EXCEEDS its fair value- difference is amount of loss

EX: when there is a decline in market value of a good, there will probably be impairment loss

JE: dr Impairment Loss
cr accumulated depreciat

45
Q

issue: accounting for natural resources

A

long lived tanfible assets that are consumed PHYSICALLY over time!!!
-> this is called wasting assets

THE DEPRECIATION OF NATURAL RESOURCES IS CLALED DEPLETION!!!!!

46
Q

What depreciation method is used when accounting for natural resources

A

UNITS OF PRODUCTION METHOD!!! CUZ PRODUCTION CAN VARY YEAR OVER YEAR

-> reserve values are the fair value of the resource (impariment will arise if reserve value<carrying amount)

47
Q

other issues in depreciaiton

A

-sometimes individual significant components depreciated separately

-depreciaiton and income tax

  • cost vs revaluation model
48
Q

HOW TO CALUCLATE GAIN/loss of an asset after sale

A

cost- accumulated depreciation= carrying amount

proceeds- carrying amount= gain/loss

49
Q

-> what is the JE for loss on disposal

A

Dr Cash/ or AR (PROCEEDS)
Dr Accumulated depreciation
Dr loss on dispoal
CR specific property, plant, or equipment account

DR acc depr to empty that account

50
Q

-> what is the JE for gain on disposal

A

Dr Cash/ or AR (PROCEEDS)
Dr Accumulated depreciation
CR gain on disposal
CR specific property, plant, or equipment account

51
Q

what are intangible assets

A
  1. do not have phsycial substance
  2. (rights/privelegs/comp adv)
    -> intellectual property in a product process
  3. must be identifiable
    -> can be separated from the company and sold
52
Q

what is NOT an intangible asset

A

GOODWILL!!!!!!

53
Q

depreciation of intangible assets is called

A

ammortization

54
Q

what is ammortization done over

A

the LESSER of estimated useful life and legal life!!!!!!

if useful like is 40 years but legal life is 10 years, must be ammortized over 10 years!

55
Q

if an intangible assets has an unlimited/indefintie life YOU…

A

DO NOT AMMORTIZE IT!!!!

56
Q

INTANGIBLE ASSETS WITH FINITE LIVES

A

PATENTS COPYRIGHTS, R&D COSTS

57
Q

WHAT ARE PATENTS

A

right to produce smthg for 20 yrs

58
Q

what are copyrgihts

A

protection for the life of the creator +50

59
Q

r&d costs

A

all costs are expenses, dev costs can be capitalized only if asocaitied with identifiable feasible product

60
Q

expensed vs capitalized

A

operating expenses vs cost of PPE

61
Q

trademakrs and trade names

A

intangible w indefinite lives

62
Q

frnacheises

A

intangible w indef life (contractual agreement to sell g/s)

63
Q

licenses

A

grant holder operating rights (intbaigble w indef life)

64
Q

what is goodwill

A

-excess of cost over fair market value of net assets (asset-liabiilties) of business acquired

-inseparable from business!!!!!!!

-not amortized but tested for impairment

65
Q

what goes on soi

A

depreciaiton
ammortization
gains and losses
impairment loss

66
Q

return on assets meaning

A

higher better, measures profitabilit

net income/avg total assets

67
Q

asset turnover

A

asset turnoover= sales/avg total assets

higher better, means for every $ in assets more sales

68
Q

return on assets alt formula

A

profit margin * asset tutnorevr

69
Q
A
70
Q

dev costs
goodwill
disclosure

under ifrs

A

capitalize and ammortize over useful life

impair tests done yearly

must provide recognition of the
opening and closing carrying amounts
of each class of non-current assets

71
Q

dev costs
goodwill
disclosure

under aspe

A

Can choose to expense or
capitalize and amortize over
useful life

Impairment tests are
performed only when events
and circumstances change.

Reconciliation not required

72
Q
A

ACCT 217 (62 decks)

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