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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
aspe two types of leases: #2: operatin glease
benefits and risks not transferred to lessee lease rental payments recorded as expense by lessee and as revenue by lessor ONLY ON SOI
26
WHAT IS DEPRECIATION
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
27
what are factors in calculating depreciation
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
28
3 ways to calculate depreciation
1) straight line 2) diminishing balance 3) untis of productionw
29
what is the best deprecaiton method
the method that best reflects the pattern of use of the economic benefits from that asset
30
how to calculate straight line rate
100% / # useful life in years = % per year
31
how to use the straight line method
cost- residual value= depreciable amount depreciable amount / useful life= depreciation expense
32
what is the diminishing balance method
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
is residual value included in diniminghing balance method
no!!!
34
formula for diminishing balance method
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
units of production method
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
comparing the different depreciation methods- Straight line depreciation -describe it -WHAT IS JE
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
comparing the different depreciation methods- diminishing balance depreciaiton
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
comparing the different depreciation methods- units of production depreciaiton
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
when do we revise depreciaition? when do we make these changes
-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
what are some issues that can arise with depreciation
a need to revise depreciation!!! a need to record asset impairments accounting for natural resources
41
when is revising depreication needed?
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
how are revisions in depreciation made?
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
what is asset impairments
when carry amount of asset> fair value this difference is a loss that must be recorded -you must test for impairment regularly
44
when do asset impairments happen -example -Journal entry
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
issue: accounting for natural resources
long lived tanfible assets that are consumed PHYSICALLY over time!!! -> this is called wasting assets THE DEPRECIATION OF NATURAL RESOURCES IS CLALED DEPLETION!!!!!
46
What depreciation method is used when accounting for natural resources
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
47
other issues in depreciaiton
-sometimes individual significant components depreciated separately -depreciaiton and income tax - cost vs revaluation model
48
HOW TO CALUCLATE GAIN/loss of an asset after sale
cost- accumulated depreciation= carrying amount proceeds- carrying amount= gain/loss
49
-> what is the JE for loss on disposal
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
-> what is the JE for gain on disposal
Dr Cash/ or AR (PROCEEDS) Dr Accumulated depreciation CR gain on disposal CR specific property, plant, or equipment account
51
what are intangible assets
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
what is NOT an intangible asset
GOODWILL!!!!!!
53
depreciation of intangible assets is called
ammortization
54
what is ammortization done over
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
if an intangible assets has an unlimited/indefintie life YOU...
DO NOT AMMORTIZE IT!!!!
56
INTANGIBLE ASSETS WITH FINITE LIVES
PATENTS COPYRIGHTS, R&D COSTS
57
WHAT ARE PATENTS
right to produce smthg for 20 yrs
58
what are copyrgihts
protection for the life of the creator +50
59
r&d costs
all costs are expenses, dev costs can be capitalized only if asocaitied with identifiable feasible product
60
expensed vs capitalized
operating expenses vs cost of PPE
61
trademakrs and trade names
intangible w indefinite lives
62
frnacheises
intangible w indef life (contractual agreement to sell g/s)
63
licenses
grant holder operating rights (intbaigble w indef life)
64
what is goodwill
-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
what goes on soi
depreciaiton ammortization gains and losses impairment loss
66
return on assets meaning
higher better, measures profitabilit net income/avg total assets
67
asset turnover
asset turnoover= sales/avg total assets higher better, means for every $ in assets more sales
68
return on assets alt formula
profit margin * asset tutnorevr
69
70
dev costs goodwill disclosure under ifrs
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
dev costs goodwill disclosure under aspe
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

ACCT 217 (62 decks)

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