Property, Plant, and Equipment (PP&E)

Question 1

Accelerated Methods: Sum of the Year Digits (SYD) - Depreciation Expense

Answer 1

Cost - Salvage Value x [# of years left in asset life/ N(N+1)/2 - sum of the years in the asset’s life]

Question 2

Straight-Line (S/L) Depreciation Method

Answer 2

Cost- Salvage Value / Useful Life

Question 3

Accelerated Methods: Double Declining Balance (DDB) - Depreciation Expense

Answer 3

Cost [1/ # of years] x 2.0 - in year 1

(Cost - Depreciation Expense yr 1) x (%) = depreciation expense yr 2

Question 4

Fixed Assets

Answer 4

PP&E are tangible assets acquired for long-term use in the normal course of business. They are not for resale and are generally subject to depreciation.

Question 5

Acquisition Cost (intended use)

Answer 5

Acquisition costs, which are capitalized as part of the asset, include not only the purchase price of the asset, but also costs associated with obtaining it and preparing the asset for its intended use.

Question 6

Acquisition Cost include…..

Answer 6

All cost of acquisition or construction as well as preparation for use:
- Purchase price
- legal fees
delinquent taxes
- title insurance
- transportation
- installation
- test runs
- sales taxes

Question 7

The cost of land includes….

Answer 7

• purchase price (including any existing building that is to be demolished)
• surveying
• clearing, grading, and landscaping
• costs of razing or demolishing an old building are added to the land cost.
• proceeds from the sale of any scarp (old bricks) are subtracted from the land cost

Question 8

Asset Retirement Obligation (ARO)

Answer 8

Estimated restoration costs that are expected to be paid at the end of the period of usage, should be recorded as a liability at fair market value, which is the amount at which that obligation could be settled today.

If this cannot be determined, estimates should be made based the present value of the expected future costs.

The liability will have to be recorded each year based on the discount rate and reported as accretion expense (a form of interest expense).