Fixed Assets

Question 1

Info

Answer 1

Started on 31 August 2014 @ 8.00 AM
Total questions 153
To do at a time 153
Practice session 93

Question 2

Intangible asset with indefinite life should be amortized.

Answer 2

should not be amortized.

Question 3

Should it be reevaluated?

Answer 3

It should be reevaluated every reporting period to determine if facts and circumstances have changed creating a limited life and requiring it to be amortized.

Question 4

Should it be tested for impairment?

Answer 4

Yes

Question 5

How often it should be tested?

Answer 5

Also, such intangible assets should be tested for impairment annually or more frequently if facts and circumstances indicate that impairment may have occurred.

Question 6

Formula for impairment?

Answer 6

If the carrying value of the intangible asset exceeds its fair value, an impairment loss should be recorded in the amount of the difference. Previously recognized impairment losses may not be recovered investments subsequent periods.

Question 7

When goodwill should be tested for impairment?

Answer 7

The goodwill assigned to a reporting unit should be tested for impairment on an annual basis and between annual tests in certain circumstances.

Question 8

When test should be done?

Answer 8

The annual test may be performed any time during the company’s fiscal year as long as it is done at the same time every year. Different reporting units may be tested at different times during the year.

Question 9

How to calculate impairment?

Answer 9

Compare the implied fair value of the reporting unit goodwill with the carrying amount of that goodwill. If the implied value of goodwill is less than its carrying amount, goodwill is written down to its implied value and an impairment loss is recognized.

Question 10

How to determine fair value?

Answer 10

Go for assets highest and best use. The valuation premise can either be an in-use or an in-exchange premise.

Question 11

A company using the group depreciation method for its delivery trucks retired one of its delivery trucks due to damage before the average service life of the group was reached. An insurance recovery was received. The net book value of these group asset accounts would be decreased by the

Answer 11

Insurance recovery received.

See the other answers as well.

Question 12

Which of the following statements is(are) correct about the carrying amount of a long-lived asset expected to be disposed of after a loss has been recognized? Assume the long-lived asset was depreciable prior to the decision to dispose of it.

Answer 12

The reduced carrying amount of the asset may be increased in subsequent years up to the carrying amount prior to adjustment, if fair value less cost to sell changes.

Question 13

What is investment property?

Answer 13

Investment property is defined as property held to earn rentals, for capital appreciation, or both.

Question 14

What is fair value model for investment property?

Answer 14

The fair value model (FVM) requires investment property to be measured at fair value. Changes in fair value are recognized in profit or loss in the period of the change.

Question 15

PPE and Investment property

Answer 15

Notice, that this is different treatment than for plant, property, and equipment, wherein the revaluation is recorded in other comprehensive income. If the fair value model is used, no depreciation is recorded. The fair value is the price at which the property could be exchanged between knowledgeable parties in an arm’s-length transaction.

Question 16

disclosure in cost model.

Answer 16

If an entity chooses the cost model, it must still disclose fair values in the notes to the financial statements.

Question 17

fact about investment property.

Answer 17

Investment property does not include property used in the business, property being constructed or developed for others, property under construction that will be future investment property, and property held for sale in the normal course of business.

Question 18

US GAAP, impairments of fixed assets.

Answer 18

under US GAAP, previously recognized impairments of fixed assets may not be recovered or reversed.

Question 19

Composite depreciation method applied to where?

Answer 19

Composite method is applied to a non homogenous group of assets.

Question 20

gain or loss in the composite depreciation method.

Answer 20

Does not recognize gain or loss on the retirement of single assets in the group.
because under the composite and group methods, if an individual asset is retired before the average life of the group is reached, the resulting gain or loss is buried in the accumulated depreciation account. The composite and group depreciation are processes of averaging the service lives of a number of assets and taking depreciation on the entire group as if it were an operating unit.

Question 21

Hint

Answer 21

when the cash flows of the assets are expected to be significantly different, the transaction has commercial substance and is recorded at fair value.
New machine 86,000 ($70,000 + $16,000)
Accum. depr. 60,000 (50% x $120,000)
Old machine 120,000
Cash 16,000
Gain on exchange 10,000 ($70,000 – $60,000)

Question 22

financial statements in accordance with IFRS. What valuation model(s) may Jae use to report the land?

Answer 22

Cost model or fair value model.

Question 23

A donated fixed asset for which the fair value has been determined should be recorded as a debit to fixed assets and a credit to

Answer 23

Other income.

Question 24

Solen Co. and Nolse Co. exchanged similar trucks with fair values in excess of carrying amounts. In addition, Solen paid Nolse to compensate for the difference in truck values and the transaction lacks commercial substance. As a consequence of the exchange, Solen recognizes

Answer 24

Neither a gain nor a loss.
Per ASC Topic 845, exchanges that lack commercial substance are recorded at book value. Therefore, gains on these exchanges are recognized only to the extent that boot is received. Since no boot is received by Solen, neither a gain nor loss would be recognized.

Question 25

When we calculate impairment loss proceed of sale of equipment should be added or not.

Answer 25

yes.

Question 26

The test for recoverability of operational assets per ASC Topic 360 uses

Answer 26

Undiscounted cash inflows less related outflows.
This answer is correct because if circumstances indicate that the carrying amount of an asset may not be recoverable, an entity shall estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Future cash flows are defined as the undiscounted future cash inflows less the undiscounted future cash outflows necessary to obtain those inflows. Note that the use of undiscounted cash flows in the recoverability test is consistent with the measurement of property, plant, and equipment at historical cost which is an undiscounted amount.

Question 27

Scott Co. exchanged similar nonmonetary assets with Dale Co. No cash was exchanged. The carrying amount of the asset surrendered by Scott exceeded both the fair value of the asset received and Dale’s carrying amount of that asset. If the transaction lacks commercial substance, Scott should recognize the difference between the carrying amount of the asset it surrendered and

Answer 27

The fair value of the asset it received as a loss.

exchanges that lack commercial substance are accounted for at book value. Although ASC Topic 845 prohibits recognition of a gain on these exchanges, it requires the recognition of any loss. Since the carrying value of the asset surrendered by Scott exceeds the fair market value of the asset received, Scott realized a loss on this exchange. Scott should value the asset received at its fair market value. The difference between the carrying amount of the asset surrendered and its fair market value (measured by the fair market value of the asset received in this case) should be recognized as a loss.

Question 28

How non monetary exchanges are recorded?

Answer 28

Nonmonetary exchanges are usually recorded using the fair value of the asset exchanged

Question 29

If the fair value (FV) of the asset given up cannot be determined thne

Answer 29

Assume it is equal to the fair value of the asset received.

Question 30

Three exceptions exist to the fair value treatment:

Answer 30

(1) if fair value is not determinable; (2) if it is an exchange transaction to facilitate sales to customers; or (3) the transaction lacks commercial substance. A transaction has commercial substance if the configuration of cash flows are significantly different as a result of the exchange.

Question 31

Commercial substance

Answer 31

A transaction has commercial substance if the configuration of cash flows are significantly different as a result of the exchange.

Question 32

What is configuration of cash flows

Answer 32

The configuration of cash flows includes the risk, timing, and the amount of future cash flows. Cash flows from tax effects are not considered in determining if the transaction has commercial substance.

Question 33

When book value method is used?

Answer 33

In these three exceptions, the transaction is measured using the recorded amount (book value) of the asset exchanged.

Question 34

How Gain or loss on a non monetary exchange is computed

Answer 34

Gain or loss on a non monetary exchange is computed as follows:
Fair value of the asset given – Book value of the asset given = Gain (loss)

Question 35

How the asset received is recorded?

Answer 35

The asset received is generally recorded at the fair value of the asset surrendered (or the FV of the asset received if “more clearly evident”).

Question 36

Cost of a successful defense

Registration fees

Answer 36

Both the cost of a successful defense and registration fees in connection with a trademark should be capitalized

Question 37

The recoverable amount is

Answer 37

The greater of its net selling price or its value in use.

Question 38

What valuation model can be used under IFRS to value plant, property, and equipment?

Answer 38

The cost model or the revaluation model.

IFRS allows plant, property, and equipment to be written up or down.

Question 39

Impairment Loss

Answer 39

The undiscounted expected net future cash inflows ($450,000) are less than the carrying amount of the equipment ($500,000). Therefore, the equipment is deemed impaired. The impairment loss is calculated by subtracting the fair value of the equipment ($375,000) from its carrying value ($500,000). (Note: Both values are at the impairment date, June 30, year 1.) The impairment loss that should be reported on Maxwell’s June 30, year 1 income statement is $125,000.

Should we take whichever is less.

Question 40

An impairment loss for a long-lived asset, which is being used in the operations of a business, is measured by the excess of the asset’s carrying amount over its

Answer 40

Fair value.
explains that an impairment loss shall be measured as the amount by which the carrying amount of the asset exceeds the fair value of the asset. The fair value of an asset is determined by the guidelines set in ASC Topic 820. Fair value is determined by using the principal or most advantageous market and assumes the asset is used in its highest and best use.

Question 41

Company A and Company B exchanged nonmonetary assets with no monetary consideration involved and no impairment of value. The exchange did not result in the cash flows of the new asset being significantly different than the cash flows of the old asset. The accounting should be based on the

Answer 41

Recorded amount of the asset relinquished.
because when nonmonetary assets are exchanged with no monetary consideration involved, no gain is recognized if the transaction lacks commercial substance. When the cash flows are not significantly different, the transaction is deemed to lack commercial substance. Therefore, the accounting for such an exchange must be based on the recorded amount of the asset relinquished (ASC Topic 845).

Question 42

About IFRS account­ing for the development costs of the company?

Answer 42

Development costs may be capitalized as an intangible asset in very restrictive situations.

Question 43

additions costing $3,600 were made to the machine in order to comply with pollution control ordinances.

Answer 43

divide by 9

Question 44

May Co. and Sty Co. exchanged nonmonetary assets. The exchange did not result in a significant difference in cash flows for either company. May paid cash to Sty in connection with the exchange. To the extent that the amount of cash exceeds a proportionate share of the carrying amount of the asset surrendered, a realized gain on the exchange should be recognized by

Answer 44

May Sty
No Yes
when a nonmonetary exchange transaction does not result in a significant difference in cash flows, the book value is used to record the transaction. However, when the exchange of nonmonetary assets includes an amount of monetary consideration, the receiver of monetary consideration has realized a partial gain on the exchange. To determine the partial gain to be recognized, first compute the total gain which is the difference between the fair market value of the nonmonetary asset given up and its book value. Then multiply the ratio of the monetary consideration received to the total consideration received (i.e., monetary consideration plus the estimated fair market value of the asset received) times the total gain. The result is the realized gain to be recognized. The entity paying the monetary consideration should not recognize any gain. Note, however, that all losses on sales or exchanges are recognized immediately.

Question 45

When equipment is retired, accumulated depreciation is debited for the original cost less any residual recovery under which of the following depreciation methods?

Answer 45

Need to understand.

Question 46

At what amount should Madden record the land acquired in the exchange?

Answer 46

if the cash flows of the two assets are not significantly different, the transaction lacks commercial substance and is recorded at book value.