Property Plant and Equipment Flashcards

1
Q

How does a change in estimated useful life affect depreciation expense?

A

A change in estimated useful life is reported on both a current and prospective basis.
Take remaining book value and calculate new depreciation.

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2
Q

How are disposal costs accounted for?

A

Disposal costs are amortized over the asset’s useful life

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3
Q

When an asset exchange lacks commercial substance, how is the received asset recorded?

A

Record the asset received at the lower of:
1. The fair value of the asset given up
2. The fair value of the asset received
3. The book value of the asset given up (plus cash paid
or minus cash received)

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4
Q

What is the proper accounting for losses when nonmonetary assets are exchanged for other nonmonetary assets?

A

A loss is recognized immediately, because assets received should not be valued at more than their cash equivalent price.

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5
Q

How is double declining balance calculated?

A
Double declining balance is twice the straight line, or 20% of the remaining book value.
So, $100,000 asset*20%=20,000 dep exp
100,000-20,000=80,000 BV
80,000*20%=16,000 BV
64,000*20%=12,800
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6
Q

When an asset exchange has commercial substance, how is the received asset recorded?

A

The acquired asset will be recorded at its fair value

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7
Q

What constitutes an asset exchange to have commercial substance?

A

ASC 845 consider an exchange to have commercial substance whenever the risk, timing and/or amount of cash flows are affected by the exchange. (IE and land investment exchanged for an oil rig to be used in drilling operations.)

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8
Q

Upon initial recognition of an asset retirement obligation, what action should not be taken?

A

Capitalize the asset retirement cost at its undiscounted cash flow value.
Must be recorded at fair value, which is generally equal to present value of payments.

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