PPE: Cost Basis (F3M4)

Question 1

Component Depreciation

Answer 1

Required by IFRS

Question 2

Composite or Group Depreciation

Answer 2

-Process of averaging economic lives of a number of property units and depreciating the entire class over a single life.
average composite life = (total cost-salvage value) / total annual depreciation (using asset specific estimated life) 

-When asset is retired, NO GAIN/LOSS ON IS. Difference between original cost and cash received should be absorbed in ACCUMULATED DEPRECIATION

Question 3

Sum of years digits depreciation

Answer 3

• Accelerated (higher in early years)
• Sum of year’s digits = N * (N+1) / 2
• N = estimated useful life

-Depreciation expense = (cost - salvage value) * (remaining life of asset / sum of year’s digits)

Question 4

Double declining depreciation

Answer 4

• accelerated (higher in early years)
• Salvage value is ignored in calculation of dep exp. instead, depreciated TO salvage value in final year (floor on NBV).
• Depreciation expense = (2 * 1/N) * (cost - accum. dep)
• declining bal can be used for 1 1/2 times etc.

Question 5

Disclosure for depreciation

Answer 5

• made in financial statements or notes
• depreciation expense for period
• balance of major classes of depreciable assets by nature of function
• accumulated depreciation allowances by classes or in total
• methods used by major classes in computer depreciation

Question 6

Depletion base

Answer 6

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

Question 7

Unit depletion rate

Answer 7

depletion base / estimated recoverable units only

Question 8

total depletion

Answer 8

unit depletion rate * number of units extracted

if units extracted are not all sold, depletion must be allocated between COGS and inventory