Property, Plant, & Equipment

Question 1

Cost of Land

Answer 1

purchase price, including existing building that is to be demolished

surveying
clearing, grading, and landscaping
costs of razing or demolishing old building

proceeds from sale of any scrap (like old bricks) are subtracted from the land cost

Question 2

Asset Retirement Obligations (ARO)

Answer 2

PV or “restoration cost” goes to a credit for “estimated restoration costs” and gets added to price of asset.

increased each year by incremental rate by debiting Accretion Expense, and debiting ARO Liability

Question 3

Asset as a donation

Answer 3

Asset
             Other Income (Contribution Revenue)

Question 4

Capitalize interest cost if asset is

Answer 4

constructed for company’s own use (built by self or outsider)
manufactured for resale resulting from a special order (ships)

Question 5

DO NOT capitalize interest if

Answer 5

costs are incurred AFTER completion of construction

inventory manufactured in the ordinary course of business

Question 6

how to find amount to be capitalized

Answer 6

Weighted avg accumulated expenditures AKA expense for the year

TIMES interest rate

–
this is interest on other debt that could have been avoided by repayment of debt
~Never exceed actual interest cost

this is the debit of BUILDING WIP
debit interest expense
credit cash for full interest expense

Question 7

Repairs and Maintenance costs

Answer 7

expensed as i ncurred UNLESS it makes the asset bigger, better, or longer then it would be capitalized

Question 8

bigger

Answer 8

additions, new capacity (hospital wing)

Asset
Cash

Question 9

better

Answer 9

improving efficiency (betterment/improvement) such as rearrangement or improving concrete floor in place of a wooden floor

Asset
Cash

Question 10

Longer

Answer 10

extension of an asset’s useful life (overhaul); costs that extend the useful life of the asset are subtracted from accumulated depreciation thereby increasing the carrying value

Accumulated depreciation
Cash

Question 11

Refurbishment

Answer 11

Replace a part of the asset

Question 12

Identifiable refurbishment

Answer 12

account for as if sold the old part and are replacing it with new part
--
accum depreciation
Loss
           Asset

Asset
Cash

Question 13

Not identifiable refurbishment

Answer 13

enhances use:
Asset
Cash

increases useful life
Accum depr
Cash

Question 14

Depreciation rate

Answer 14

1/useful life

Question 15

Accelerated Depreciation Methods

Answer 15

Sum of the years digits (SYD)
Double Declining Balance (DDB)
Units of Productions (UOP)

basically everything other than straight-line

Benefits:
better matching (more expense early on is good)
helps reduce loss from obsolescence
Evens out expenses due to lots of deprecation at first and almost no repairs and maintenance

Question 16

Sum of the years digits

Answer 16

(cost - salvage)

TIMES

number of years left in assets life / n(n+1)/2

Question 17

Double-Declining Balance (DDB)

Answer 17

Salvage value is ignoredwill never get to 0**
In the final year, reduve the carrying value to the salvage value
~switch from DDB to either SYD or S/L toward the end of the asset’s useful life, repreciating the asset to its Salvage value

YEAR 1: cost * [(1/useful life) * 2] = %
YEAR 2: cost - last years depr exp. * %

Question 18

Units of Production (activity method)

Answer 18

based on some output

cost-salvage) * (hours/total hours

Question 19

Recoverability test & Impairment loss

Answer 19

recoverabiltiy test: if CV > Expected future cash flows = impairment loss

Impairment loss: CV > FV = amount of loss

–
Loss on Impairment (I/S)
Accumulated Depreciation

Question 20

Can an impairment loss be restored for an asset held for use?

Answer 20

Under GAAP - no

Under IFRS - yes

Question 21

Impairment loss for held for sale(disposal)

Answer 21

Get rid of asset and accum depr. to set up as “other asset” aka “equipment to be disposed of”

Loss on planned disposition
Equipment to be disposed of
Accumulated depreciation
Equipment

STOP DEPRECIATING “other asset”!!!

Question 22

Can an impairment loss be restored for an asset held for sale (disposal)?

Answer 22

Yes as long as write-up is never greater than the carrying amount of the asset before the impairment

Question 23

Disposal of asset (assuming you are still using it)

Answer 23

Get rid of asset and accum. depr UP TO DATE OF SALE.

Cash
Accum depr
Loss
            PPE
            or gain

gain/loss goes in other non-operating on I/S

Question 24

Nonmonetary exchange with commercial substance

Answer 24

Recognize ALL gains and losses
Record new asset at:

1. FMV given up + cash paid (-cash received)
2. FMV of asset received
3. Book value (BV) given up + cash paid (-cash received)

Question 25

Nonmonetary exchanging l a c k i n g commercial substance

Answer 25

this is when you trade with a competitor

Recognize all losses, DEFER ALL GAINS ~unless~ boot is received

record at lower of

1. FMV given up +cash paid (-cash received)
2. FM of asset received
3. Book value (BV) given up + cash paid (-cash received)

Question 26

Boot

Answer 26

Cash received

recognize gain up to amount of boot received:

(boot/(FV of asset received+boot) * gain

UNLESS, boot is 25% or more of total consideration i(FV of asset received+boot), the recognize the entire gain

Question 27

Cost Model

Answer 27

Used under IFRS; used to depreciate asset to its residual value, similar to GAAP

Losses are recognized immediately in I/S profit or loss

Question 28

Revaluation Model

Answer 28

R in “DENT-R” (revaluation adjustments); used under IFRS when Fair Value is readily determinable; the asset is periodically adjusted to its estimated fair value

impairment loss is a revaluation decrease

Question 29

Under IFRS, which intangibles are required to be tested for impairment regardless of whether or not there is an indication of impairment?

Answer 29

Those with indefinite useful lives and those not yet ready for use by the entity

Question 30

Investment property under IFRS

Answer 30

either use fair market value: measured at fair value at each balance sheet date with changes recognized in profit or loss; no depreciation is recorded.

Cost Model: measured at initial cost less accumulated depreciation and accumulated impairment losses; disclose fair value

Question 31

Biological costs under IFRS

Answer 31

recognized at fair value LESS costs to sell at harvest (=NRV)
Gains and losses go to income

Question 32

Component Depreciation

Answer 32

Depreciating significant parts seperately; used only with IFRS

Question 33

Impairment loss under IFRS

Answer 33

CV > Net recoverable amount

Net Recoverable Amount is the larger of net selling price or value in use

Question 34

Similar vs Dissimilar in IFRS

Answer 34

lacking commercial substance (like-kind exchange) vs has commercial substance

Question 35

Formula for calculating gain with boot

Answer 35

FMV received 
\+boot received
=Total consideration
-book value given up
=gain * (boot received/total consideration)