Fixed Assets Flashcards
Fixed Assets
The accounting for nonmonetary exchanges should be based on?
In general, the accounting for nonmonetary exchanges should be based on fair value, which is the same basis as that used in monetary transactions. The asset received should be recorded at the fair value of the asset surrendered or the fair value of the asset received, whichever is more clearly evident.
The difference between this fair value and the book value of the asset surrendered should be recognized as a gain or loss at the time of the exchange.
Fixed Assets
Describe Sum of the Years Digits (SYD)
Sum-of-the-years’-digits is an accelerated depreciation method that applies a fraction, which decreases each period, to the acquisition cost (less residual value). It is based on the assumption that the productivity or revenue-generating power of the asset is relatively greater during the earlier years of its life or that maintenance expenses tend to increase during the later years. It produces results similar to double-declining balance.
Fraction computation:
•Numerator: years’ digit in reverse order: 4, 3, 2, 1,
•Denominator: sum of the years’ digits: 1 + 2 + 3 + 4 = 10, or
•n[(n+1) ÷ 2], where n = life in years [4 (5) ÷ 2] = 10.
Fractions for each successive year: •Year 1: 4/10 •Year 2: 3/10 •Year 3: 2/10 •Year 4: 1/10
The computation is SYD depreciation = Fraction × (Cost - Residual value).
Fixed Assets
What are the three exception cases in which a nonmonetary exchange should be recorded based on the recorded amount (book value) of the assets surrendered:
- Fair value is not determinable.
- Exchange transaction is to facilitate sales for customers.
- Exchange transaction lacks commercial substance.
Fixed Assets
True or False
In determining if a nonmonetary exchange has commercial substance, the key issue is to determine if the exchange is expected to significantly change the entity’s future cash flows.
True
In determining if a nonmonetary exchange has commercial substance, the key issue is to determine if the exchange is expected to significantly change the entity’s future cash flows.
Fixed Assets
What are the two criteria that is used to determine that the entity’s future cash flows are expected to change significantly in a nonmonetary Fixed Asset transaction ?
FASB ASC 845-10-30-4 specifies that the entity’s future cash flows are expected to change significantly if either of the following criteria is met:
- The configuration (risk, timing and amount) of the future cash flows of the asset(s) received differs significantly from the configuration of the future cash flows of the asset(s) transferred.
- The entity-specific value of the asset(s) received differs from the entity-specific value of the asset(s) transferred, and the difference is significant in relation to the fair values of the assets exchanged.
Fixed Assets
True or False
The amount of interest cost which should be capitalized during building construction is the lower of avoidable interest or actual interest.
True
The amount of interest cost which should be capitalized during building construction is the lower of avoidable interest or actual interest.
Fixed Assets
What is the formula to calculate gain when the assets exchanged DO NOT have commercial substance.
Total Gain = Fair value Assets received - Book value of assets given up
Gain recognized = (Boot received) / (Boot received + FMV of assets received)) x Total Gain
Fixed Assets
When is a long lived asset considered impaired?
A long lived asset is considered impaired if the future cash flows (UNDISCOUNTED) expected to result from the use of the asset and its eventual disposition are less than the carrying amount of the asset
Fixed Assets
If an asset is deemed impaired, what action needs to be taken?
The assets carrying value is reduced to fair value and a loss on impairment is recognized for the difference.
Fixed Assets
Under IFRS, what valuation methods are used for intangible assets?
The cost model or the revaluation model.
Fixed Assets
Under IFRS, any changes when using the revaluation method should be recorded where in the financial statements?
Retained earnings
Fixed Assets
True or False
Under IFRS, when an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be revalued
True
Under IFRS, when an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be revalued.
Fixed Assets
Under IFRS, intangible assets with indefinite lives must be tested for impairment when?
Annually at the annual reporting date.
Fixed Assets
True or False
When software costs are capitalized, yearly amortization of these costs is based on the greater of the ratio of current sales to expected total sales or the straight-line method over the useful life of the asset (four years).
True
When software costs are capitalized, yearly amortization of these costs is based on the GREATER of the RATIO OF CURRENT SALES TO EXPECTED TOTAL SALES or the STRAIGHT LINE method over the useful life of the asset .
Fixed Assets
Provide an example of the two step process in calculating the impairment of goodwill.
Impairment of goodwill is a two-step process:
Step 1, Compare:
(a) year-end fair value of reporting unit $400,000
(b) carrying amount, INCLUDING goodwill $470,000
If (b) exceeds (a), go to step 2.
If (a) exceeds (b), no impairment.
Step 2, Compare:
(a) implied fair value of reporting
unit goodwill ($400,000 - $330,000) $ 70,000
(b) carrying amount of goodwill $100,000
Since (b) exceeds (a) by $30,000, an impairment loss of $30,000 is recognized.
If (a) exceeds (b), no impairment.
Note: The impairment loss cannot exceed the recorded goodwill.