PPE

Question 1

required disclosure for PPE

Answer 1

useful life, dep methods, and accumulated dep of plant asset

Question 2

requirement for asset to be a plant asset

Answer 2

1. currently used in operations
2. life extending more than 1 yr
3. have physical substance

Question 3

asset held for sale is reported..

Answer 3

net realizable value

Question 4

criterion for capitalizing costs:

Answer 4

1. increase in useful life

2. increase in productivity or efficiency including cost reduction

Question 5

gains/losses on sale of assets is part of:

Answer 5

continuing operations

Question 6

general rule for classifying an expenditure

Answer 6

necessary to bring the asset to its intended condition and location
includes: shipping, installation, testing, insurance, legal fees, title guarantees

Question 7

are net demolition costs (demolition- salvage value) included in land or building

Answer 7

land because it is a cost required to prepare the land for its eventual use.

Question 8

what are land improvements

Answer 8

have finite life and is depreciated. example: parking lots, fencing, land scraping

Question 9

what are natural resources

Answer 9

should be expensed. not capitalized or depreciated. example: gravel pit, coal mines

Question 10

when asset lacks commercial substance how is it recorded

Answer 10

book value plus land given plus boot given

Question 11

donated assets are recorded at

Answer 11

fair market value

Question 12

weighted average method:

Answer 12

capitalize interest using weighted average rate on all interest bearing debt.

example; 6,000,000 face value, 8% interest
8,000,000 face value, 9% interest

6x.08=.48
8x.09=.72
14 1.2

1.2/14=8.57%

Question 13

interest curing construction in assets constructed for a firms own use is capitalized until..

Answer 13

construction is complete. thus only the interest incurred after completion is expensed

Question 14

interest is capitalized on the construction of assets for sale if..

Answer 14

the assets are large, individual, discrete projects, such as ships and real estate development

Question 15

specific method..

Answer 15

capitalize interest on specific consruction loan first then if needed, capitalize interest on all other debt based on average interst rate for that debt.

example: 6%, 60,000 loan
4%, 90,000 payable
6%, 90,000 payable

.06(60,000)+.05(AAE-60,000)

Question 16

capitalized interst is limited to the interest that would have been avoided had the construction not occured

Answer 16

this is the amount of interest based on AAE

Question 17

calculation of net equipment

Answer 17

net equip 2004+equip purchases-book value of equip sold+depreciation exp+net equip 2005

Question 18

double declining balance calculation

Answer 18

twice straight line methods or 2/useful life. and no salvage value

example: dep 2004= 240,000(2/10)=48,000
dep 2005=(240-48)(2/10)=38,000

Question 19

what is the successful efforts method and what is the best association

Answer 19

capitalize only costs of exploration efforts that locate resources. association: asset

Question 20

what is the full costing method and what is the best association

Answer 20

capitalize all costs. successful and unsuccessful. association: matching

Question 21

calculate COGS under succesful exploration method

Answer 21

acquisition+exploration costs+development costs
that divided by total tons
that times tons removed in 1 yr
= depletion
\+additional extraction costs
=COGS

Question 22

under IFRS where are increases and decreases in FV recorded

Answer 22

increases in an assets fair value aboive original cost are recorded in a revaluation surplus account.

decreases in FV below original cost are recorded as a loss to income statement

Question 23

what are components under IFRS accounting for PPE

Answer 23

1. estimated useful life and depreciation method reviewed annually
2. component depreciation required EX) building components depreciated separately
3. PPE can be revalued to fair value . but it must apply to entire call or components of PPE
4. interest earned on construction funds can offset the interest costs.