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FAR - Fact Nuggets > Fixed Assets > Flashcards

Fixed Assets Flashcards

1
Q

What is the journal entry in a non monetary exchange with commercial substance?

A
  • DR: FV received
  • DR: A/D Given up
    • DR/CR: Loss/(gain)
    • DR/CR: Cash received/(paid)
    • CR: Asset Given up

Recognize all realized gain or loss immediately

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2
Q

How are assets recorded in Nonmonetary exchanges with commercial substance?

A

At fair value of asset surrendered. Gains or losses are recognized immediately.

Gain or loss = FV given up - CV of Asset given up

Or use FV of asset received + cash received - cash paid

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3
Q

How are non monetary exchanges for intangibles recorded?

A

The recorded value of purchased intangibles is the value of the consideration given or the value of the intangible, whichever is more reliable. The book value of the seller is not a reliable substitute for market value.

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4
Q

How are assets recorded in Nonmonetary exchanges with NO commercial substance?

A

*Calculate gain or lost first, then plug entry*

Gain or loss = FV of asset given up - CV of Asset given up

Recognize realized losses immediately.

Only recognize gain if boot is received.

New asset recorded at BV of old asset + cash paid - loss

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5
Q

How is gain calculated if boot is received? (Nonmonetary exchange, No commercial substance)

A

If boot is more than 25%, recognize ALL of realized gain.

If boot is less than 25% - realized gain X % of boot (ratio of cash received to total consideration)

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6
Q

Non monetary exchange, no commercial substance, cash paid - do you record a gain?

A

No! Think about Pam’s old pizza truck. If you have to pay to get rid of it, you are not in a gain position.

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7
Q

How do you calculate Sum of the Years Digits Depreciation?

A
  • (N/SYD) x (Cost - Salvage Value)
  • N= Useful life SYD= (N x (N+1)) /2
  • Example if N = 5 : (5x6)/2 = 15
  • First year depr = 5/15 x (Cost - Salvage)
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8
Q

What is the accounting for impairment of asset?

A

DR: Impairment loss (Expense)

CR: Asset or A/D

Depreciate based on new asset value. Impairment loss cannot be recovered on asset in use, but additional impairments are possible

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9
Q

What is the accounting for Held for Sale Assets

A
  • -Written down to FV less cost to sell (impairment loss)
  • -Asset removed from plant assets
    • No longer depreciated
  • -Asset can be Written back up if value recovers (limited to impairment loss)
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10
Q

What are the two steps to impair assets under GAAP?

A

TEST: Is the CV higher than Undiscounted Cash Flow?

MEASURE: Impairment = Carrying Value - Fair Value No recovery in future years

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11
Q

What is the process to impair assets under IFRS?

A

CV less than Recoverable amount. Recoverable is higher of:

  • Fair Value less cost to sell or
  • Value in use (cash flows discounted to PV) Impairment loss can be reversed if value rises in future years
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12
Q

What is component depreciation under IFRS?

A

If asset has different components with different useful lives, depreciation is calculated separately.

EX: Building is 30 years, roof is 15 years, plumbing system is 7 years. All calculated separately.

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13
Q

What are the entries for asset revaluation under IFRS?

A

Building was bought for $100, but is now worth $120

DR: Building $20

CR: Revaluation Surplus $20

Two years later, building is worth $90

DR: Revaluation Surplus $20

DR: Revaluation Loss $10

CR: Building $30

Entire class of assets must be revalued. Revaluation surplus goes to OCI, losses are recorded on I/S.

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14
Q

What are required footnote disclosures for PPE?

A
    • range of useful life
    • depreciation methods
    • accumulated depreciation of plant assets
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15
Q

Which depreciation method does not consider salvage value?

A

Double Declining Balance Rate does not consider salvage value, however, adjust at end of life to never allow balance to dip below SV

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16
Q

What is capitalized for Natural Resources (mining)?

A
    • Acquisition Costs
    • Exploration Costs **
    • Development Costs

** Exploration costs are either full cost or successful efforts

17
Q

What is the accounting for Natural Resource Extraction (mining)?

A
  • Natural Resource is shown as a non-current asset. Once extracted, moves to inventory.
  • Depletion, Depreciation on Equipment, Extraction costs, and Production Costs are included in COGS.
  • Depletion is allocation of capitalized Natural Resources using unit of production.
18
Q

What are the two steps for asset impairment?

A
  1. Test: Are the undiscounted future net cash flows greater than the carrying value?
  2. Measure: For use: Impairment loss =CV - FV.
    • Depreciate on new basis No reversal of loss.
    • Held for sale: Impairment loss =CV - FV - cost to sell. No Depreciation. Future Reversal allowed.
19
Q

What gain or loss is recognized if assets are exchanged to facilitate a sale to customers?

A

None, this is an exception to measuring nonmonetary exchanges.

20
Q

What is the treatment of PP&E purchased for R&D ?

A
  • If asset will be useful for current and future projects, depreciate over useful life and charge depreciation to R&D.
  • If asset will be useful for multiple R&D project, depreciate over useful life and charge depreciation to R&D.
  • If asset is only for a single R&D project, expense immediately
21
Q

In a non monetary exchange, if FV received and FV given up are both evident, which should be recorded for a new asset?

A

Fair Value for asset surrendered

22
Q

What is the PPE impairment rules in IFRS vs GAAP

A

IFRS - one step process - difference between carrying value and recoverable amount (greater of FV less cost to sell and PV of future cash flows). Future write up allowed.

GAAP - two step - 1) TEST - carrying value greater than the undiscounted future cash flows 2) MEASURE - Carrying value minus Fair Value. Future write up not allowed.

23
Q

How do you calculate depreciation under the Fair Value Model?

A

Trick Question! Report investments at FV, no depreciation reported.

Gains and losses from change of FV of investment property are reported on I/S

Cost model - Carrying value = Hist. Cost - A/D - Impairment. FV must be disclosed.

24
Q

How is a capitalized interest calculated on self constructed assets ?

A
  • Only capitalize interest on money actually spent, not the total amount borrowed -Amount capitalized is lower of
    1) actual interest cost incurred or
    2) computed capitalized interest (avoidable interest) Average Accumulated Expenditures - total expenditure
25
Q

How is accretion expense on ARO measured?

A

Multiplying the balance of the ARO liability x credit adjusted discount rate

DR: Accretion Expense

CR: ARO liability

26
Q

How is revaluation surplus cleared out upon sale of an asset ?

A
  • Record the normal gain/loss in the income statement
  • Clear the revaluation surplus account out through retained earnings
27
Q

Are testing and preparation of machine for use capitalized ?

A

YES!

The acquisition cost of a machine for use in a company’s manufacturing operations includes all costs reasonably necessary to bring the asset to the location where it is to be used and to make it ready for its intended use, including insurance while in-transit and test runs.

28
Q

Under IFRS, what valuation methods are used for intangible assets ?

A

The cost model or the revaluation model

29
Q

What are the three conditions required to capitalize interest?

A
  • Expenditures for the asset have been made.
  • Activities necessary to get the asset ready for its intended use are in progress.
  • Interest cost is being incurred.
30
Q

What type of cash flows are used to test for impairment under GAAP?

A

Test : Undiscounted future cash flows

Measure: Book Value - fair value

31
Q

What is the boot % for gains on non commercial transactions with boot received ?

A

Recognize part of realized gains

FV or boot (cash)

divided by

FV of asset received + FV of boot

FAR - Fact Nuggets (17 decks)

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