Property Plant & Equipment

Question 1

What criteria represent an arm’s length transaction at fair value?

Answer 1

1. The transaction must be between independent parties
2. The seller has the right to decline the offered price
3. Parties operate in similar markets

Transaction costs are not included in fair value. Transactions costs are recorded separately

Question 2

How are assets recorded on acquisition date?

Answer 2

FV of the assets given up

Question 3

How is a non-monetary exchange with commercial substance recorded on acquisition date?

Answer 3

1. record the new asset at the FV of assets given up
2. remove the old asset and accumulated depreciation (book value)
3. recognize the gain or loss

Gain and losses are realized immediately for all non-monetary exchanges that have commmercial substance

Question 4

How is a non-monetary exchage that lacks commercial substand recorded on acquisition date?

Answer 4

1. record the new asset at the FV of assets given up less any cash received less any deferred revenue
2. remove the old asset and accumulated depreciation (book value)
3. recognize losses immediately
4. If there is a gain and no cash is involved, defer the gain by reducing the basis of the new asset
5. If there is a gain and cash is provided, defer the gain by reducing the basis of the new asset
6. If there is a gain and cash is received, a portion or all of the gain is recognized

Question 5

What is boot ratio?

Answer 5

Ratio calculated to determine the amount of cash received in a non-monetary exchange to be recognized

Question 6

Boot ratio calculation?

Answer 6

Cash received / Cash received + FV of asset received)

This ratio is multiplied by the gain to determine the realized and deferred portion of the non-monetary exchange

Question 7

Double Declining Balance depreciation method?

Answer 7

Depreciation method that is double straight line depreciation. Salvage value is ignored and the asset is depreciated to the salavage value