PP&E: Depreciation and Disposal (F3:M5)

Question 1

as it pertains to depreciation, what does IFRS require that GAAP does not?

Answer 1

component depreciation (e.g., a machine is depreciated separately from some of its components)

Question 2

under composite/group depreciation, what is the journal entry needed to record the retirement of an asset before the average service life of the group of assets is reached?

Answer 2

Cash (d)
Acc Dep (d)
Asset (c)

*difference between original cost and cash received is charged to Acc Dep

Question 3

what is the formula for calculating sum-of-years’-digits depreciation?

Answer 3

literally add the years digits
OR
sum-of-years’-digits = [N x (N + 1)]/2
where N = est. useful life

dep exp = (cost - salvage) x remaining life/sum-of-years’

Question 4

double declining depreciation formula

Answer 4

dep exp = 2 x 1/N x (cost - acc dep)

*where N = est. useful life

Question 5

what are the only methods of calculating depreciation that ignore salvage value?

Answer 5

declining balance methods

Question 6

what is the formula for calculating depletion?

Answer 6

total depletion = unit depletion rate x number of units extracted

Question 7

what is the formula for calculating unit depletion rate?

Answer 7

unit depletion rate = depletion base/est. recoverable units

Question 8

how do you calculate the depletion base?

Answer 8

cost to purchase property
+development cost to prep land for extraction
+any estimated restoration costs
(residual value of land after resources are extracted)

Question 9

the “cash equivalent price” of a machine is its ___.

Answer 9

fair value

Question 10

what is the formula for calculating “composite life” of assets?

Answer 10

total depreciable cost (base) / total annual dep exp

Question 11

if an asset has a salvage value, should acc dep equal original cost of asset at the end of its estimated useful life?

Answer 11

NO! That would mean it was depreciated below its salvage value