Depreciation

Question 1

Cost of Building

Answer 1

Architect fee
+ Construction cost of Building

Question 2

Cost of Land

Answer 2

Purchase price + Delinquent Taxes on property + Demolition of existing building - Proceeds from sale of scrap materials+Real estate taxes in arrears+Clearing of trees and grading (leveling) + Surveying + Clearing, Grading and landscaping

Question 3

The composite depreciation method _________

Answer 3

does not recognize gain or loss on the retirement of single assets in the group. (A> composite method is generally used for collection of somewhat dissimilar assets with different lives. B>The group method usually refers to a collection of similar assets with approx the same useful lives. C>Accelerated or SL methods can be used with the composite method.

USE FORMULA
DEPRECIABLE BASE= (COST - SALVAGE VALUE)
___________________________
ANNUAL DEPRECIATION

Question 4

Donated non-monetary assets are recorded at the ____________

Answer 4

FV of the asset received

Question 5

If Sum of undiscounted cash flows is less than the CV, then calculate Impairment

Answer 5

Impairment = CV-FV

Question 6

FIFO follows LCNRV

Answer 6

Lower of Cost or NRV

Question 7

Recording price of Land

Answer 7

County assessment for sewer lines + Title search fees + Cash paid for land with a building to be demolished + Removal of old building less salvage

(NOT TO BE CONSIDERED: Excavation for construction of basement)

Question 8

Special revenue fund

Answer 8

It is used to account for specific revenues (e.g. gas tax for road maintenance) that come from earmarked sources and are restricted to financing designated activities. Both the principal and interest can be used for those activities.

Question 9

When is company required to evaluate the asset for impairment?

Answer 9

When events or circumstances indicate the CV might not be recoverable.

Question 10

Cost of Land

Answer 10

Purchase Price
+ Delinquent Taxes
+Surveying
+ Clearing, grading, landscaping
+ Costs of razing existing building on land
(- )Proceeds from the sale of scrap materials

Question 11

When a firm is in liquidation, historical cost and entry values (replacement cost) are no longer relevant. The firm is no longer a going concern. The only amounts relevant are the amounts to be received on sale of the assets. NRV is the net value to be received, after the costs of getting the asset ready for sale are deducted.

Answer 11

NRV to be considered when firm is in liquidation (Balance Sheet)

Question 12

Undiscounted cash flow < CV : Calculate Impairment

Answer 12

Impairment = CV - FV

Question 13

Interest during construction period only can be (or if used for discrete manufacturing) _______

Answer 13

CAPITALIZED

Question 14

New Truck (FMV) XXX
Accumulated Dep (AD) XXX
Old Truck XXX
Gain XXX
Cash paid to dealer XXX

Answer 14

Like-kind exchange

Question 15

Double declining balance does not consider Salvage Value

Answer 15

True

Question 16

Sum of Year Digits - e.g. 15 years depreciation (to be calculated for year 4)

Answer 16

Cost - Salvage Value *(No. of years remaining / sum of total number of years Denominator = (15+14+13+12+11+10+9+8+7+6+5+4+3+2+1)

Question 17

$12,000 Liability insurance premium during the construction period

Answer 17

Classify as Building and Depreciate

Question 18

Purchase of building

Answer 18

Classify as land and do not depreciate

Question 19

Carrying Value

Answer 19

Cost - Accumulated Depreciation

Question 20

Construction int cost capitalized int

Answer 20

Consider Weighted avg amount of ACCUMULATED EXPENDITURE if it is less than total interest incurred or the avoidable int

Question 21

Excavation cost - treated as part of the cost of the building

Answer 21

depending on the question

Question 22

Capitalized int is recognized on borrowed funds used to finance the weighted avg accumulated expense for a qualifying asset during the construction period.

Answer 22

True

Question 23

Land

Answer 23

Cost of razing

Question 24

Use Units of production method when

Answer 24

An asset’s Service potential DECLINES with use.

Question 25

Capitalized int construction is allowed on Special order goods on hand for sale to customers and also allowed on real estate development projects if INTENDED FOR SALE.

Answer 25

Also allowed - During delays in obtaining permits to complete building construction.

Question 26

Weighted avg interest rate %

Answer 26

(Int rate * Debt) + (Int Rate *Note)
___________________
Total Borrowing

Question 27

Restoration costs of Mine

Answer 27

Add them into the depletion base of the mine.

Question 28

Capitalize costs that improve the quality, efficiency or productive capacity of a fixed asset.

Answer 28

True (all 3)

Question 29

Depletion amount per unit would be the same for every year unless additional expenditures were incurred

Answer 29

True (Per tonne)

Question 29

No Accumulated Dep to be considered in

Answer 29

SUM OF YEAR DIGITS

Question 30

Half year convention (e.g. total 6 year useful life) means use half of SL method in the first and the last year and __

Answer 30

SL for remaining years (e.g. year 2 to 5 - SL)
Years 1 and Year 6 - Half convention

Question 31

A subsequent reveral of an impairment loss is prohibited under GAAP ___________________

Answer 31

unless it is held for disposal

Question 32

SOYD - 120 degrees - slanting line (declines at a constant rate)

DDB - Curved one (at the highest point as compared to SL and SOYD)

Answer 32

True

Question 33

Construction int cost will be expense if there has been an intentional delay

Answer 33

True

Question 34

Total price of assets include Appraised cost

Answer 34

True

Question 35

Property held for sale

Answer 35

All cost inclusive of Construction cost should be expensed

Question 36

Impairment loss will be added to Accumulated Depreciation calculation

Answer 36

(if any) if impairment points are provided in the question

Question 37

CAPITALIZED INTEREST cannot exceed that year’s________________

Answer 37

ACTUAL INTEREST COST

Question 37

Int method

Answer 37

1) Weighted Avg Method (capitalized int goes to PPE account)
2) Specific Method (expense remaining portion)

Question 37

100,000 spent EVENLY THROUGHOUT THE YEAR in year 1

Answer 37

it means 100000/2 = 50000 is the weighted avg accumulated expenditure during the year

Question 38

Specific method is based on _________

Answer 38

Weighted avg accumulated expenditure e.g. 50k in above point #40

Question 39

Non-Accelerated methods

Answer 39

SL and Units of Production

Question 40

Accelerated methods used for Tax purposes to increase expense and this will cause _________________

Answer 40

Taxable income to be lower

Question 41

COmposite

Answer 41

Dissimilar Assets

Question 42

Group Dep

Answer 42

Similar Assets

Question 43

Depletion , charge to Inventory

Answer 43

JE -

Inventory XX
Accumulation Depreciation XX

Question 44

Depletion expense , Transferred from Inventory to COGS when ___________

Answer 44

SOLD

JE

Depletion Expense XX
Inventory XX

Question 45

Natural resource and intangibles

Answer 45

Non-current Assets

Question 46

Asset purchase price to be depreciated

Answer 46

Shipping (freight in), Purchasing, Installation, Taxes, Test runs (SPITT)

Question 47

At the time of dispose off when no cash was received at the time of disposal

Answer 47

Accumulated Dep XX
Loss on Transaction (Cost - AD) XX
PP&E XX

Question 48

Total Acquisition Costs and Get Ready Costs

Total Acquisition Cost - Cost allocated to land = Cost allocated to Building

Answer 48

Purchase price
Legal fees
Delinquent Taxes
Title Insurance
Transportation (freight in) + Transit insurance
Installation
Test runs
Sales taxes