Fixed Assets

Question 1

What are acquisition costs

Answer 1

Not only include the purchase price of the assets but also include the assets for its intended use.
Purchase Price
legal fees
delinquent taxes
Title Insurance
Transportation
Freight In
Installation 
Test runs
Sales Taxes

Question 2

Cost of Land

Answer 2

Purchase Price
Surveying
Clearing Grading and Landscaping
Cost of Razing or demolishing
less-proceeds from sale of any scrap

Question 3

Lump sum purchases

Answer 3

Releative fair value method

Question 4

ARO

Answer 4

Asset Retirement Obligation- ASC 410. It is called as estimated restoration costs to be paid at the end of life usage.
LIablity will have to be increased based on discount rate and reported as accretion expense.
Accretion expense
ARO liablity

Question 5

Capitalization of interest

Answer 5

Asc 835- Interest borrowed from bank need to be capitalized to the part that it was borrowed for the building. For Ex., if we are borrowing 1,000,000 from banj and using it for construction this year 600,000 and next year 400,000 then WIP will be calculated for the amount used to built that year other portion of the amount will be charged to interest exp.
Building WIP
Interest exp
Cash

Question 6

Calculate WIP only if

Answer 6

Construct for companys own use

Asset manufactured for resale of special order

Question 7

Do Not Capitalize Interest if

Answer 7

Costs are incurred after completion of construction

Inventory manufactured in the ordinary course of business.

Question 8

Normal Repairs and Maintenance

Answer 8

Income Statement

Question 9

If it makes asset Bigger, Better and Longer

Answer 9

Capital expenditure

Question 10

Refurbishment-Replace a part of asset

Answer 10

Account as if sold the old part and replacing it with a new part
Accumulated Depreciation
Loss
asset

Asset
Cash

Question 11

Not Identifiable-

Answer 11

Enhances the asset-
Asset
Cash
Increasing the asset useful life
Accumulated depreciation
cash

Question 12

various depreciation mehods

Answer 12

Straight Line Method- Cost-salvage/useful life
Sum of the year Digits- Cost-salvage valuex(#No.of year in asset’s life/ Sum of years in assets life =depreciation expense N(N+1)/2 then this becomes denominator. no.of years
Double Declining Balance- Don’t have a salvage
UOP-Units of production
Cost-Sv= Hours this year/Total Number of years

Question 13

When not to recover impairment

Answer 13

For assets held for use

Question 14

Loss of Impairment Journal entry

Answer 14

Loss of impairment

Acuumulated depreciation

Question 15

What are the two step process in Impairment

Answer 15

Carrying value>expected future cash flows= Impairment Loss . Then in next step calculate amount
Carrying value>Fair Value

Question 16

Non-Monetary Exchanges

Answer 16

Are recognized at fair value

Question 17

Exchanges with commercial substance

Answer 17

FMV Given up+ cash paid(-Cash Received)
FMV of asset received
BV Given up + cash paid(-cash received)
Recognize all gains and losses

Question 18

Exchanges without commercial substance

Answer 18

FMV Given up +cash paid-cash received
FMV of asset received
Book value given up +cash paid-cash received
Defer all gains Recognize all losses unless boot is received
If the gain is above or 25% recognize gain

Question 19

Funky Formulae to recognize gain if it was more than 25%

Answer 19

Cash/FMV. For the exchange lacking commercial substance . Subtract FMV from net book value received it the boot received is less than 25% calculate the proportionate gain.

Question 20

when to use implicit rate

Answer 20

if it is both lower and known use implicit rate

Question 21

Assets under IFRS

Answer 21

Cost Model, Revaluation Model

Question 22

Test for impairment

Answer 22

c.v> net recoverable amount we have an impairment loss.

Question 23

where revaluation profit or loss goes to

Answer 23

If it is cost model it goes to profit or loss

If it is revaluation model it goes to OCI-R as in DENT-R

Question 24

If you are paying boot

If you are receiving boot

Answer 24

Record all losses defer all gains
Record all losses and recognize gains upto the proportionate share of the boot received
Always hit the old asset for the cost value

Question 25

delinquent realestate

Answer 25

goes to land

Question 26

What is the difference between composite and group assets

Answer 26

Both composite and group depreciation use the straight-line method. Both methods aggregate groups of assets. The composite method is used for a collection of dissimilar assets with varying useful lives, whereas the group method deals with similar assets. Each method involves the calculation of a total depreciable cost for all the assets included in one account and of a weighted-average estimated useful life.

Question 27

A company using the composite depreciation method for its fleet of trucks, cars, and campers retired one of its trucks and received cash from a salvage company. The net carrying amount of these composite asset accounts was decreased by the

Answer 27

Because both composite and group methods use weighted averages of useful lives and depreciation rates, early and late retirements are expected to offset each other. Consequently, gains and losses on retirements of single assets are treated as adjustments of accumulated depreciation. The entry is to credit the asset at cost, debit cash for any proceeds received, and debit accumulated depreciation for the difference. Thus, the net carrying amount of the composite asset accounts is decreased by the amount of cash received. The net carrying amount of total assets is unchanged.

Question 28

how to depreciate under IFRS

Answer 28

Under IFRS, each part of an item with a cost significant to the total cost must be depreciated separately. The engine and the seats are considered significant to the total cost and thus should be depreciated separately. The company uses straight-line depreciation, and the bus has no residual value. Therefore, the depreciation expense for the engine is $2,500 ($25,000 ÷ 10 years), for the seats is $1,250 ($10,000 ÷ 8 years), and for the rest of the bus is $3,250 [($100,000 – $25,000 – $10,000) ÷ 20 years]. The total depreciation expense the company should recognize for the bus for the year ended December 31, Year 1, is $7,000 ($2,500 + $1,250 + $3,250).

Question 29

Non monetary exchange gain or loss

Answer 29

Correct C.
$0

D.
$(1,000)

You are correct, the answer is C.

FASB ASC 845-10-30-1 specifies that the accounting for nonmonetary exchanges generally should be accounted for based on fair values, which is the same basis as that used for monetary transactions. FASB ASC 845-10-30-3 provides three exception cases in which a nonmonetary exchange should be recorded based on the recorded amount (book value) of the assets surrendered:

1. Fair value is not determinable.
2. Exchange transaction is to facilitate sales for customers.
3. Exchange transaction lacks commercial substance.

In Beam’s case, exception 2 is met. The exchange of the inventory is to facilitate sales to Beam’s customers. The exchange should be recorded based on carrying amounts with no gain recognized. If the inventory’s carrying amount had been in excess of the fair value of the inventory given up, the inventory given up should have been written down and the loss recognized before the exchange was recorded.