FAR 8 - Fixed Assets

Question 1

How should Asset Retirement Obligations (AROs) be recorded?

Answer 1

Either at fair market value (amount the ARO could be settled for today), or the present value of future cash flows

Question 2

Accretion expense for an ARO is recorded at what value?

Answer 2

Credit adjusted risk free interest rate.

Question 3

Journal entry for Accretion Expenses

Answer 3

DR Accretion Expense, CR ARO Liability

Question 4

Journal entry for initial ARO Liability

Answer 4

DR Land xxx, CR cash, CR ARO liability

Question 5

At what point are assets held for sale depreciated?

Answer 5

They are never depreciated. They are written down to NRV - net realizable value.

Question 6

Capitalized interest is computed at the lesser of either of which two values?

Answer 6

Either the weighted average accumulated expenditure times the interest rate or the actual interest expense.

Question 7

How to compute IFRS cost model

Answer 7

Figure depreciation per year according to each separate component, then add to get yearly depreciation amount.

Question 8

What are the 3 rules for nonmonetary exchanges with commercial substance?

Answer 8

1. FMV given up + cash paid (-cash received)
2. FMV of asset received
3. BV (book value) given up + cash paid (-cash received)

Question 9

What are the rules for nonmonetary exchanges without commercial substance?

Answer 9

• Recognize all losses- item cannot be listed for more than what it is worth.
• Defer all gains (if no commercial subdstance, no realization under GAAP) UNLESS BOOT IS RECEIVED
• Record lowest of three values:(same 3 rules for Com Subst)

1. FMV given up + cash paid (-cash received)
2. FMV of asset received
3. BV of asset given up +cash paid (-cash received)

Question 10

What is formula for SYD depreciation method?

Answer 10

(Cost-Salvage value)*(# of years left in assets life) = depreciation

(sum of yearsin assets life )

Denominator = N(N+1)/2 where N= #years left in assets life.