FAR 17

Question 1

What are the disclosures required for ARO

Answer 1

• description of the obligation and related asset
• description of how fair value was determined
• the funding policy
• the reconciliation of the beginning and ending carrying value

Question 2

How do you handle is you get an asset as a donation

Answer 2

It is treated as ordinary income (non-operating income) for the FMV of the donation:

dr. Land 3M
cr. Other Income (contributed revenue) 3M

Question 3

What are interest amount that can be capitalized as part of building:

Answer 3

• Weighted avg. accumulated expenditures * interest rate
• Interest on other debt that could have been avoided by repayment of debt
• NEVER exceed actual interest cost11

Question 4

IFRS and ARO

Answer 4

Under IFRS - ARO is called a decommissioning liability

• It is the estimated amount to return the the property to useable condition
• It is periodically adjusted to recognize changed in carrying value of of the property and subsequent;y affecting depreciation and amortization expense
• When property is fully depreciated - any adjustment to the decommissioning liability is recognized in profit or loss since it is too late to make an adjustment to depreciation or amortization

Question 5

are legal fees during negotiation of land purchase and engineering fees for grading capitalized and land?

Answer 5

Yes - both capitalized under land

Question 6

How are ARO’s recognized

Answer 6

• recognized at fair value
• capitalize the asset retirement costs by increasing the carrying value of the related assets
• allocate ARO costs to expense over the useful life if the related asset

Question 7

When a transaction lacks commercial substance - how is the non monetary transaction measured

Answer 7

the transaction is measured on the basis of the reported amounts

Question 8

At what type of interest rate is the accretion expense recorded at

Answer 8

a credit adjusted risk free interest rate.

Question 9

When calculating depletions what will total costs include

Answer 9

land, engineering costs, development costs, costs to restore land, and reduced by residual value expected at the end

Question 10

When is reversal of a previously recognized impairment loss allowed

Answer 10

long lived assets held for sale / held for disposal

Question 11

What amount of interest can be capitalized

Answer 11

Interest that can be capitalized on a qualifying asset is the avoidable interest which is the interest that could have been avoided if the qualifying as not been made.

The amount capitalized is calculated on the excess average accumulated expenditure using weighted avg. of the d

Question 12

Newt Co. sold a warehouse and used the proceeds to acquire a new warehouse. The excess of the proceeds over the carrying amount of the warehouse sold should be reported as a (an

Answer 12

Part of continuing operations

The sale of a warehouse, as is true for the sale of any asset, is reported by eliminating the carrying value and recognizing the difference between the carrying value and the proceeds as a gain or loss in the period of sale, not a reduction of the cost of the new warehouse.

It is not considered extraordinary as it is not a transaction that would be both unusual in nature and infrequent of occurrence and would, as a result, be included in income from continuing operations.

It would only be considered discontinued operations if the sale of the warehouse represented a strategic shift in operations.

Question 13

What are the general disclosures required for PP&E

Answer 13

you are required to disclose:

• Balances in each major class of PP&E or in aggregate
• depreciation expense
• The methods used to calculate depreciation

(no need to disclose Fair value info or info about upcoming major repairs or maintenance)

Question 14

How are ARO Under IFRS different - (decommissioning liability)

Answer 14

It is basically the same

• its the estimated amount to get it back to shape
• it is periodically adjusted with increases and decreasing going to the carrying value by affecting accumulated depreciation
• any adjustments after its fully depreciated - go to profit and loss

Question 15

What are the two methods of of recognizing assets under IFRS

Answer 15

cost - asset depreciated to its residual value - you can depreciate components separately

revaluation model - asset is periodically evaluated and adjusted to its fair value

An asset may not be reported at an amount that is greater than its recoverability amount

this is an impairment and is recognized. Once impaired

cost - impairment recon. immediately

revaluation - impairment is a revaluation decrease. this is done when there is an indication of impairment

Exceptions: indefinite lives intangibles, intangibles not ready for use - these are regularly tested

Question 16

Under IFRS what costs when acquiring machinery are expensed immediately

Answer 16

• Costs to bring it up to salable condition are capitalized - like freight in
• interest expense - is expensed when incurred - same as GAAP

Question 17

How is a piece of machinery recorded when you put down 10,000 cash, pv of equip is 110,00, and you have a notes payable of 120,000 (24 payments of 5,000), discount on N.P of 20,000

Answer 17

dr. Machinery 110,000
dr. discount on N.P 20,000 (130 - 110)
cr. N.P. 120,000 (24 * 5K)
cr. cash 10,000

Question 18

Cole Co. began constructing a building for its own use in January 20X3. During 20X3, Cole incurred interest of $50,000 on specific construction debt, and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during 20X3 was $40,000. What amount of interest cost should Cole capitalize?

Answer 18

40,000

Interest may be capitalized on assets constructed for a company’s own use. The amount to be capitalized is based on weighted average accumulated expenditures related to the asset. When that amount exceeds the interest on debt that is directly related to the asset, interest on other debt may be capitalized as well. When the weighted average is lower than directly related debt, however, only a portion of the interest on that debt is capitalized. Since the interest on weighted average accumulated expenditures is $40,000, which is lower than the interest on directly related debt, only the $40,000 will be capitalized.

Question 19

What happens when a fixed asset is reclassified on the balance sheet as held for sale

Answer 19

• reclassified on B/S as held for sale
• no longer depreciated -
• if expected to be sold in 4 months - classified as a current asset
• It is held at the NRV = the amount for which they are expected to be sold net of costs of disposal

Question 20

Under IFRS - how is investment property held under fair value method accounted for at the end of the year

Answer 20

• Under fair value the asset is periodically evaluated and adjusted to its fair value on that date
• PP&E is depreciated between valuation dates
• INVESTMENT property, however, under fair value is kept at FV, not depreciated, , until a subsequent evaluation of the fair value

Question 21

Under IFRS when a long lived asset is impaired (CV >NRV) 300 > 275 then the amount the loss recognized is:

Answer 21

the carrying amount (700 - 400 = 300) is REDUCED to the NRV = $275

so 25,000 is the loss