Fixed Assets

Question 1

How are Research and Development costs recorded?

Answer 1

They are expensed in the period incurred and are not capitalized.

Question 2

Which expenditures are included in the cost of a building?

Answer 2

All expenditures to get the building into working condition are ready for use

Question 3

Which expenditures are included in the cost of land?

Answer 3

All expenditures to get the land ready for its intended use:

Title & County Fees

Clearing of Land - Dirt work etc.

Demolition and removal of old buildings (minus any scrap or salvage)

Note: capitalized land costs are not depreciated

Question 4

In an exchange of non-monetary assets how much gain is recognized if no additional cash is exchanged when there is no significant difference in resulting cash flows?

Answer 4

If the cash flows from the assets exchanged are not significantly different no gain or loss is recognized on a non-monetary exchange as it lacks commercial substance.

The new asset is recorded at the book value of the asset given up.

The only gain that can be recognized is any boot (cash) received.

Question 5

In an exchange of non-monetary assets what gain is recognized if resulting cash flows are significantly different?

Answer 5

If resulting cash flows are significantly different then the transaction has commercial substance and a gain/loss is recorded on the exchange.

The new asset is recorded at the FAIR VALUE of the assets given up unless the asset acquired has a fair value that is easier to determine.

Question 6

How is donated property recorded by the donee?

Answer 6

Recorded at Fair Value + costs associated with getting the property into working condition for its designed purpose

Exam Tip - Think of a charity holding afair and then donating the property which is then recorded atfair value

Question 7

How is donation of property recorded by the donor?

Answer 7

Recorded at Fair Value of asset given up.

Gain or Loss is recorded.

Question 8

How is double-declining balance (DDB) depreciation calculated?

Answer 8

1 / (Useful Life x 2 x Book Value)

Ignore salvage value.

Question 9

How is Sum of Year’s Digits (SYD) depreciation calculated?

Answer 9

(Cost - Salvage Value) x (Remaining Useful Life / SYD) : Depreciation expense

For example the depreciation factor for the third year of a 10-year asset would be:

: 8 / (10+9+8+7+6+5+4+3+2+1) : 8/55 : 14.5%

Remaining useful life : 8 SYD : 55

Question 10

How is straight line depreciation calculated?

Answer 10

(Cost - Salvage Value) / Useful life : depreciation expense

Question 11

When is an asset considered to be impaired? How is impairment loss calculated?

Answer 11

When the un-discounted future cash flows are less than the carrying value of the asset.

Carrying Value - Fair Value : Impairment Loss

Note: impaired assets that recover their value can’t be written back up once written down

Question 12

How are legal fees to defend a patent amortized?

Answer 12

If the patent is SUCCESSFULLY defended the legal fees are amortized over the patent’s economic life.

If unsuccessful they are expensed immediately.

Question 13

What are the two steps for testing goodwill impairment?

Answer 13

Compare the CV to the FV. If FV is greater than CV no impairment exists you’re done.

If impairment appears to exist the assets and liabilities should be compared to the total value of the reporting unit. The difference is Goodwill. Compare this amount to the CV of the Goodwill and write it down accordingly.

Question 14

How are costs for developing software recorded?

Answer 14

Expenses prior to technological feasibility are expensed as R&D.

After technological feasibility but prior to production costs are capitalized.

Expenses incurred during production are charged to inventory.

Expenses incurred training on internal use software are expensed.

Question 15

What expenditures are included in the cost of equipment?

Answer 15

All expenditures to get the asset into working condition and ready for use:

Purchase price + liabilities assumed
Shipping
Taxes
Insurance
Installation
Testing
Legal fees
Construction loan interest

Any alterations to existing facilities or equipment necessary for the new purchase and installation that extend the life or increase the efficiency of these assets are capitalized.

Question 16

Non-monetary transaction gain calculation

Answer 16

(Boot rec / (boot rec + fav of assets )) x total gain

Question 17

When to capitalize cost

Answer 17

If an addition, increase in useful life, increase in productivity

Question 18

How is asset recorded

Answer 18

At historical cost, measured by cash or cash equivalent price. Discounts represent future interest expense

Question 19

Productive output method equation

Answer 19

Current output / total expected activity x (original cost - salvage value)

Question 20

What is composite/group depreciation

Answer 20

Uses averages of service lives of number of property units and depreciates as single unit. Group = similar assets, composite = dissimilar units

Question 21

What happens with asset retirement under composite method

Answer 21

Composite asset account decreased by cash received

Question 22

At what cost are assets to be sold recorded

Answer 22

At lower of fv less cost to sell (npv) or cv

Question 23

How are losses associated with long-lived assets recorded

Answer 23

Reported as component of income from continuing ops

Question 24

What may cause asset to be impaired

Answer 24

Change in way asset used or physical change in asset, asset cost incurred exceed planned amount, un discounted future cash flows and int charges are less than CV, adverse legal issues

Question 25

Impairment calculation

Answer 25

Cost - Accum Dep = CV - Actual Value = Loss on impairment

Question 26

When is asset impaired

Answer 26

Future cash flows less than CV

Question 27

What is used as FV for impairment testing

Answer 27

Principle of most advantageous market and based on lowest level priority input ( level 1)

Question 28

Depreciation after impairment adjustment

Answer 28

Use new FV (new CV) and depreciate over remaining life

Question 29

When is asset tested for impairment

Answer 29

When circumstances indicate CV might not be recoverable

Question 30

How to calculate depletion

Answer 30

Depletion base / est units of resource x units removed

Depletion base = cost + development + restoration - residual value

Question 31

How is software valued

Answer 31

At lower of un amortized cost or NRV

Question 32

What are some capitalized startup costs

Answer 32

Cost of acquiring assets, cost of advertising, license fees

Question 33

How are organizational costs treated?

Answer 33

Expensed as incurred

Question 34

What are included in R&D costs?

Answer 34

Designs, modifications, constructing, testing

Question 35

When are R&D expenses not expensed

Answer 35

Fixed assets, intangible assets, and materials with future uses

Question 36

How is annual amount of capitalized software cost determined?

Answer 36

Greater of ration of software current sales to expected total sales or SL method over economic life of product

Question 37

Where is IFRS reval model gain recorded?

Answer 37

OCI in revaluation surplus account

Question 38

Where is IFRS revaluation gain for investments recorded?

Answer 38

In income

Question 39

How is IFRS gain on sale of asset recorded using revaluation model recorded

Answer 39

SP - CV in income , move revaluation surplus to RE

Question 40

When can IFRS revaluation be used with intangible assets

Answer 40

Only is active maker exists for intangible asset

Question 41

Criteria for booking Goodwill under IFRS?

Answer 41

Asset identifiable and lacks physical substance

Question 42

IFRS depreciation of assets with multiple components

Answer 42

Each major component (including inspections) to be depreciated over useful lives

Question 43

How are development costs treated under IFRS?

Answer 43

May be capitalized as intangible asset in certain situations

Question 44

What are IFRS biological assets and how are they treated?

Answer 44

Live animals and plants, must be disclose ld separately on BS