Fixed Assets

Question 1

Composite (Group) depreciation - dissimilar or similar (homogeneous) assets

1. Depreciation or composite rate
2. Composite life

Gains and losses are not recognized on disposal. Gains and losses are netted into accumulated depreciation.

Answer 1

1. ## Sum of annual SL dep’n. of individual assetsTotal asset cost
2. Depreciation base (total asset cost less salvage value) / Sum of annual SL depreciation

Question 2

Double declining balance

Answer 2

Method which excludes salvage value from the base for the depreciation calculation. It ignores the salvage value when determining the base used for the depreciation calculation.

1st year = Asset Cost/2
2nd. = Answer in 1st/2
3rd. = Answer in 2nd/2
And so on….BUT NOT BELOW SALVAGE VALUE

Question 3

Sum of Years Depreciation

Answer 3

Example: $10K asset, 4-year life, $2K salvage value:

Add life: 4 + 3+2+ 1 = 10
1st year: 10,000 - 2,000= 8,000 x 4/10 = 3,200
2nd          8,000 x 3/10 = 2,400
3rd.          8,000 x 2/10 = 1,600
4th.           8,000 x 1/10 = 800

Question 4

Assets that are intended to be held and used should be tested forimpairment.

Answer 4

Impairment occurs when the carrying amount of a long-lived asset or asset group exceeds its fair value. However, an impairment loss is recognized ONLY IF THE CARRYING AMOUNT OF THE ASSET IS NOT RECOVERABLE. The carrying value is considered not recoverable if it exceeds the sum of the expected value of the undiscounted cash flows. RECOVERIES OF PREVIOUSLY RECOGNIZED IMPAIRMENT LOSSES MAY NOT BE RECOGNIZED IN SUBSEQUENT PERIODS.

Question 5

With respect to subsequent goodwill recognition, private companies may choose to amortize goodwill over a period not to exceed 10 years

Answer 5

Entities other than public business entities; not for profit entities; and employee benefit plans may amortize goodwill on a straight line basis over a maximum of 10 years.

Question 6

On Goodwill:

Answer 6

1. The cost of internally developing GW should be recognized as expense as incurred.
2. GW is not amortized.
3. GW can only be recorded as the result of a business combination.
4. GW should be examined at least annually for impairment.

Question 7

Gain, transaction lacks commercial substance, boot received.

Answer 7

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 includes an amount of monetary consideration, the receiver has realized a partial gain. To determine partial gain to be recognized, first compute the total gain which is the diff. between fair market value of the nonmonetary asset given up and its book value. Then:
Boot received
——————- x Total gain = gain
Boot received + FV recognized
of asset received

If the FV of asset received is not given, it may be determined by subtracting the boot received from the FV of the asset given up