Fixed assets

Question 1

How is depletion rate calculated

Answer 1

Depletion rate = (Natural resources account balance - residual value)/total estimated units.
Depletion period for a period = depletion rate x no. of units removed in period.
Note: the natural resources account bal. includes related restoration costs if applicable

Question 2

what are extraction costs

Answer 2

depreciation on removable assets, wages, and material costs pertaining to the extraction effort. These costs are debited to the inventory of the resource not the the natural resources account. J/E
Dr. Extraction cost
Cr. Accumulated Depreciation

Notes:

a) Equipment that can be used at more than one natural resource site should be depreciated over the shorter of useful life.
b) Equipment dedicated to one site (often not removable) should be depreciated over the shorter of useful life or life of natural resource site.

Question 3

What are the Different ways to calculate depreciation of PPE

Answer 3

Straight line: (Cost - salvage)/useful life
Depreciation based on srvc use = dep. rate x srvc hrs used
Sum of year digits: No. of yrs remaining x ( no. Of yrs + 1)/2 = sum of yrs. then no. Of yrs x (cost - salvage)
DDB yr. 1 DDB = 2 x straight line (i.e. cost/total estimated useful life) x (cost - acc dep)
DDB yr 2 DDB = yrs 1 depreciation - cost/total estimated useful life Salvage value is not deduced for depreciation but depreciation is not below salvage amt.

Question 4

How are development cost handles under IFRS

Answer 4

Development cost may be capitalized only if 6 criteria are met.

1. Technological feasibility of completing the asset for use or sale has been achieved
2. The entity intends to complete and use or sell the asset
3. The entity has the ability to use or sell the asset
4. The entity understands how the asset will generate probable future economic benefits
5. technical, financial and other resources are available to complete development of the asset
6. The entity has the ability to reliably measure the expenditures.

Question 5

What is plant assets?

Answer 5

Plant assets are also called property, plant and equipment; is a long term fixed asset that is used to produce or sell products and services for the company

Question 6

Composite depreciation vs group depreciation.

Answer 6

composite method is generally used for collection of somewhat dissimilar assets with different lives additionally, It does not recognize gain or loss on the retirement of single assets in the group.The group method usually refers to a collection of similar assets with approximately the same useful lives.

Question 7

What are the methods of amortizing of computer software costs?

Answer 7

Revenue method - amortization for current year = book value of capitalized software costs at begin of year X (current year revenue)/ (current year revenue + estimated future revenue)

Straight line method - amortization for current year = book value of capitalized software costs at beginning of year/ No. of years remaining in product sales life at begin of year.

** calculate both and choose the higher of the two amount each period