FAR 8 - PP&E

Question 1

What is an ARO

Answer 1

asset retirement obligation

Question 2

is accretion expense for AROs recorded at the risk-free rate?

Answer 2

No, accretion expense is recorded at the credit-adjusted risk free interest rate

Question 3

How do you calculate accretion expense?

Answer 3

multiply the fair value of the ARO at the beginning of the year by the credit-adjusted risk free interest rate

Question 4

When an asset is acquired in exchange for a noninterest bearing note, at what method is the asset valued?

Answer 4

fair value

**Wording is “the asset could have been purchased for…

Question 5

When an asset is acquired in exchange for a noninterest bearing note, at what method is the asset valued, if fair market value is not available?

Answer 5

if fair value cannot be determined, the asset will be valued at the present value of the payments for the note

Question 6

Can impairment losses on long-lived assets held for use (as opposed to held for sale) be reversed?

Answer 6

No

Question 7

When is an asset determined to be impaired?

Answer 7

When the sum of the undiscounted future cash flows is less that it’s carrying value

Question 8

When an asset has been identified as impaired, how do you calculate the amount of impairment?

Answer 8

the amount of impairment is the excess of carrying value over the fair value

Question 9

Under IFRS, how do you determine if an asset as been impaired?

Answer 9

under IFRS, an asset is impaired when the CV exceeds the fair value (easier than GAAP)

Question 10

Under IFRS, how do you calculate impairment?

Answer 10

Under IFRS, once an asset is determined to be impaired (CV greater than FV), the asset is written down to it’s recoverable amount.

The impairment loss is the excess CV over its recoverable amount

Question 11

Under IFRS, what is an assets “recoverable amount”

Answer 11

the recoverable amount is the greater of its NRV or its value in use

Question 12

Under IFRS, what is an assets “value in use”

Answer 12

value in use is the present value of expected future cash flows

Question 13

When a fixed asset is held for sale, how does it get reported on the balance sheet?

Answer 13

When a fixed asset is held for sale, it gets reclassified on the balance sheet as held for sale.

**If it is expected to be sold in less than a year, it will be reported as a current asset.

Question 14

Are assets that are held for sale still depreciated?

Answer 14

No. Assets that are held for sale are written down to their NRV

Question 15

When an asset is being held for sale, what is its NRV?

Answer 15

NRV = Sale price - net costs of disposal

Question 16

What is the formula for calculating depreciation using Units-of-Production?

Answer 16

Depreciable Base X (year’s units/total estimated units)

**Depreciable base= cost - salvage value

Question 17

An asset held for investment under the fair value method would be valued at what measure?

Answer 17

investment property is adjusted to its fair value and remains at that amount until a subsequent evaluation is performed.

Any gains or losses are recognized in income.

Question 18

Are assets held for investment depreciated?

Answer 18

No, they are valued at their fair value upon each evaluation date

Question 19

How do you calculate the ARO balance at the end of the year?

Answer 19

ARO beg bal
\+ accretion
\+ present value of acquired ARO
- payments toward settlement of AROs
=ARO end bal

Question 20

For a lum-sum acquisition of land and building, would mortgages be included in the total amount capitalized for financial accounting purposes?

Answer 20

Yes.

For example, an entity purchases an office building and land for $750 cash and existing $250 mortgage. The total amount capitalized is $1,000

**This $1,000 amount would then need to be allocated between building and land

Question 21

When an asset is acquired in exchange for a note payable, how do you determine the capitalized cost?

Answer 21

the capitalized cost includes the present value of the payments to be made + cash paid + all costs necessary to get it ready for its intended use

Question 22

When are depreciable/fixed assets required to be tested for impairment?

Answer 22

A depreciable/fixed asset is only required to be tested for impairment when there is a triggering event (“when events or circumstances indicate that the company will not recover the assets carrying value”)

Question 23

When are intangibles with no determined useful life and goodwill required to be tested for impairment?

Answer 23

at least annually.

intangibles that aren’t subject to amortization are required to be tested at least annually