Depreciable Assets and Depreciation

Question 1

pay close to attention

Answer 1

if we buy or sell during year then not full year depreciation

Question 2

what

Answer 2

long term assets NOT held for sale (not inventory); fixed assets; ppe

Question 3

physical dep

Answer 3

deterioration

Question 4

functional dep

Answer 4

obsolete; inadequate

Question 5

salvage value

Answer 5

is an estimate

Question 6

estimated useful life

Answer 6

estimate change!

Question 7

depreciable base

Answer 7

cost-sv

Question 8

IFRS

Answer 8

estimates of useful life, salvage value etc. should be reviewed for appropriateness at each b/s date -> not a requirement under US GAAP

Question 9

component depreciation

Answer 9

advantage -> more accurate;
for each item in the class vs. class iteself

Question 10

component depreciation

Answer 10

advantage -> more accurate;
for each item in the class vs. class itself

problem on f4-45
machine
cylinder
inspection cost
depreciated separately

Question 11

composite/group

Answer 11

entire class of asstes -> may be dissimilar assets or a group of similar assets

AVERAGE economic lives of a number of property units and depreciating the entire class over a single life

no gain or loss on that individual asset recognized when one asset in the group is sold at a gain or loss

you just

dr. cash for 80
cr. cost 120
dr. acc dep plug

Question 12

composite

problem on page f4-46

Answer 12

dissimilar
different salvage values; different useful lives

3 machines (doesnt matter if similar or not)
cost: add all costs
sv: add all sv
Depreciable value = cost -sv

Useful life:
find annual depreciation for each machine; sum to find total depreciation expense

total depreciable base/total depreciation expense = average life

average composite rate rate: total dep expense/ total historical cost

Question 13

group

Answer 13

similar

Question 14

if an asset is sold and part of group or composite

Answer 14

dr. cash (selling price)
dr. acc dep (plug)
cr. asset disposed (hist cost)

Question 15

straight line

Answer 15

service potential declines with time

Question 16

sum of the years’ digits

Answer 16

higher dep exp in the early years and lower charges in later years

1) sum of digits: 5 years = 5+4+3+2+1 = 15 base

2) year 1 -> 5 (number of years rem at beg of that year)/15base
year 2-> 4/15base

5(5+1)/2 -> general formula for sum of digits

Question 17

base for straight line and sum of digits, and unites of production

Answer 17

cost-sv value

Question 18

double declining

cost-acc dep

Answer 18

rapid obsole

dep expense: 2* (1/useful life) (always same) * (cost-acc dep)

ignore SV
USE COST-ACC DEP

cannot be dep below SV; max acc dep -> cost -sv

last period dep will be plug most likely

Question 19

units of production method

Answer 19

[(cost-sv)/total estimated units of production] * actual units produced during the year

Question 20

units of production

Answer 20

service potential declines with us NOT time like plane

THIS IS THE ONLY METHOD THAT MAKES DEPRECIATION A VARIABLE COST and not a fixed expense

Question 21

partial year depreciation IMP

Answer 21

dep expense is taken only in the portion os the year the asset is used; from the date it is placed into service; before it is disposed off

Question 22

sale of an asset during its useful life

Answer 22

dr. cash received from sale
dr. acc dep of asset sold to date of sale
cr. asset that is sold at its historical cost
cr. gain/loss is plug

Question 23

writing off a fully depreciated asset

Answer 23

dr. acc dep (100%)
cr. asset at its historical cost (100%)

nbv does not change

Question 24

total and permanent impairment

Answer 24

dr. acc dep per records (what is given)
dr. loss due to impairment
cr. asset at full cost

this loss unusual or infrequent on the i/s

Question 25

in the top 3 cases

Answer 25

know acc dep; indiividually; dont use it as plug

only plug acc dep when you cant calculate

Question 26

depletion

Answer 26

natural resources

purchase: buy it + prepare it for removal of resource so like drilling cost land development cost etc. + estimated restoration cost

sv=residual value

base: cost-residual value

Question 27

depletion

Answer 27

GAAP: based on recoverable units

base/recoverable or extractable units = rate/unit

rate * units produced or removed extracted

Question 28

depletion cogs

Answer 28

rate * units sold

the units that are not sold are included in inventory as direct materials or inventory