FAR 16

Question 1

What would an exchange be measured based on the reported amount of of the non monetary asset surrendered?

Answer 1

A transaction lacking commercial substance -

• the transaction is measured on the basis of reported amounts

Question 2

What are the costs capitalized in land

Answer 2

Acquisition price + any costs incurred to preparing the land for its intended use:

• surveying
• clearing
• grading
• landscaping
• razing (demo old building)

Question 3

What are the two steps to test whether an asset has been impaired

Answer 3

1 - recoverability test - compare expected future net undercounted cash flows from the asset to the asset’s carrying amount

2 - If yes impaired then the impairment = Carrying amount - Fair value = impairment

( Fair value can either be the market value or the present value)

Question 4

When are long lived assets required to be tested for impairments

Answer 4

• only as a result of a triggering event that make you think the carrying value of the asset is not recoverable

Question 5

What are the capitalized costs of equipment

Answer 5

• Includes cash paid
• present value of scheduled annual payments
• any costs necessary o get it to its intended use

Question 6

Under IFRS you can depreciate different components of an asset

Answer 6

airframe$60 / 20yrs
engine $40 / 16
other components $20 / 4

Total depreciation for year - 10.5M

Question 7

How the the fair value method of carrying PP&E work?

Answer 7

An asset is periodically evaluated and carrying value is adjusted to its fair value on that date

If equipment - fair value is depreciated between valuation dates

If investment property - the amount remains at the fair value amount until a subsequent evaluation of fair value - no regular depreciation

Question 8

What is the reevaluation model - IFRS

Answer 8

This says that fixed assets that have been previously written down can have their value recovered.

The amount up to the previous valuation - profit and loss the additional amount goes to OCI

If an item of PP&E is revalued - the entire class of which the asset belongs must also be revalued

Question 9

What happens when you do a non monetary exchange with commercial substance

Answer 9

• it has commercial substance if there is improved cashflows for both parties

All gains or losses must be recognized

Question 10

What is the maximum amount of interest you can capitalize

Answer 10

Under GAAP - it is based on the weighted avg cumulative expenditures for the year

If costs of 2,400,000 happened uniformly throughout the year

The Weighetd avg costs: (0 + 2.4M)/2 or 1.2

Question 11

When is a loss on an exchange of non monetary assets recognized?

Answer 11

It should be recognized immediately - assets received should not be valued at more than their cash equivalent price

Question 12

How do you treat disposal costs - ARO

Answer 12

You estimate what you think they will be when you acquire the liability

Then you amortize them over the assets useful life

If at the end of the life the actual costs of the disposal are more than you planned for then you expense those in the year in which they occur

Question 13

When can you capitalize interest

Answer 13

You can on assets constructed for a company’s own use.

When the amount exceed the interest on debstthat is directly related to the asset - interest on the other debt may be capitalized as well.

When weighted avg is lower than directly related debt - only portion of the interest on that debt is capitalized

Question 14

What do you do when you sell a warehouse and use the proceeds to acquire a new warehouse, but then there is excess $ over the carrying amount of the warehouse sold - how should this be reported?

Answer 14

The excess is a gain that is recognized as part of continuing operations

Question 15

When is a depreciable asset required to be tested for impairment

Answer 15

only when there is triggering event - which occurs when events or circumstances indicate that the company will not recover the assets’s carrying value

Question 16

Under accounting principles generally accepted in the United States, in order for an item to qualify for recognition in the financial statements of a company, the item must

    I.     Be measurable in monetary terms

    II.    Reflect the consensus expectations of investors

    III.   Meet the definition of an element on the balance sheet

Answer 16

I only - in order for an item to qualify for recognition on the financial statements, it should meet the definition of an element of financial statements; be measurable with reasonable reliability; be relevant to users; and is based on information that is representationally faithful, verifiable, and neutral. It is not required to meet the consensus expectations of investors. An element of financial statements may be an element of the balance sheet or may be an element of the income statement.

Question 17

How does ARO work?

Answer 17

Take the beginning balance of ARO
add: accretion expense (like interest)
add: present value of  the ARO associated with the new assets
subtract: payments 
Beg ARO (257,000)
Add accretion expense  (+ 26,000)
Add PV of new acquisitions (+68,000)
Subtract: settlement payments (-87,000)

=257,000 +26,000+68000-87,000 = 264000

Question 18

When can you capitalize interest?

Answer 18

If the construction is for the entry’s own use.

It is in an amount that is based on the weighted avg expenditures

Example: 600,000 in expenditures spend evenly over year

have a 12% construction loan of 500K. So

Question 19

ARO When and how much are they supposed to be recorded at

Answer 19

They are recorded as a liability at fair market value ( the amount that they would be settled at today) PV of expected future cost

Example: Buys piece of land for 100K, it will cost 20K to restore the land after extract the oil, AND land will have a 30K value at end of time (12years)

PV of 1 at 6% 12yrs = .5 so a restoration cost of $20,000 would have a PV of .5*20,000 = 10,000

Entry to record the acquisition of property:

dr. land 30,000
dr Oil reserves 80,000
cr cash 100
cr ARO 10

Question 20

How are ARO costs classified

Answer 20

Long term liabilities and are amortized using the effective interest method.

Question 21

What is accretion expense

Answer 21

This is the growth of the liability over time:

dr. accretion expense 600
cr. ARO liability 600

so that as time passes the Liability will grow to the 20,000 needed to restore it over time

At end you pay the 20K to restore

dr. ARO liability 20,000
cr. Cash 20,000