Property, Plant, & Equipment

Question 1

Group Depreciation & Composite Depreciation: Commonalities

Answer 1

assets are depreciated on the basis of their average lives. New assets are recorded at cost, and retirements are accounted for by crediting Assets for the original cost of the equipment and debiting Accumulated Depreciation for the original cost less proceeds received; thus, no gain or loss is recognized on disposal.

Question 2

Group Depreciation

Answer 2

pools of assets that are similar in nature

Question 3

Composite Depreciation

Answer 3

essentially dissimilar assets.

Question 4

Three Categories of Impaired Assets

Answer 4

held for use, held for disposal by sale, and held for disposal other than by sale.

Question 5

Assets Held for Use

Answer 5

any subsequent reversal of a previously recognized impairment loss is prohibited.

Question 6

Assets Held for Disposal by Sale

Answer 6

the asset is measured at the lower of its book or fair value less cost to sell and its depreciation (or amortization) discontinues. Increases in the fair value, up to but not exceeding book value, would be recognized.

Question 7

Change in Accounting Estimate

Answer 7

Changes in depreciation method, residual value, and useful economic life

Question 8

Asset Retirement Costs: GAAP & IFRS

Answer 8

require a provision for asset retirement costs to be recorded when there is a legal obligation

Question 9

Decomissioning Liability

Answer 9

the estimated cost to put the property into a usable or saleable condition when it is no longer going to be used for its original purpose. The liability is reviewed and adjusted to reflect changes in the estimated cost with increases or decreases recognized as adjustments to the carrying value of the property. When the property is fully depreciated, any adjustment to the decommissioning liability is recognized as a profit or loss since it is too late to recognize it as an adjustment to depreciation or amortization.

Question 10

Land with Building

Answer 10

If the existing building is sold and the buyer assumes the costs for its removal, the entire amount of the proceeds from the sale of the building should be deducted from the cost of the land.

Question 11

Asset Retirement Obligation

Answer 11

involves the retirement of a tangible, long-lived asset that depends on a future event beyond the control of an obligated party. Initial recognition of liability is at fair value (FV) or present value (PV) of expected future restoration cost using adjusted risk-free rate.

Question 12

Involuntary Conversion of Nonmonetary Asset to Monetary Asset

Answer 12

Any gain or loss realized on the property converted be recognized in income even though the enterprise reinvests or is obligated to reinvest the monetary assets in replacement nonmonetary assets. Since any gain or loss realized on the property converted is recognized in income, the replacement nonmonetary asset is recorded at cost.

Question 13

Depreciable Base

Answer 13

A fixed asset should never be depreciated below its salvage value under any method of depreciation. The depreciable base of a plant asset is its acquisition cost less any estimated salvage value. The depreciable base is allocated to expense over the life of the asset in a systematic and rational manner. At the end of its estimated useful life, the accumulated depreciation would equal the depreciable base of the asset.

Question 14

Composite and Group Depreciation: Retirement of Plant Asset

Answer 14

no gain or loss is recognized upon the retirement of a plant asset. Accumulated depreciation is debited for the difference between original cost and the cash received; no gain or loss is recorded on the disposition.

Question 15

Incidental Costs

Answer 15

capitalized as costs of acquiring the replacement property. do not affect the gain or loss recognized due to the involuntary conversion.

Question 16

Straight Line Method

Answer 16

depreciates the cost less salvage value evenly over the estimated useful life of the asset.

Question 17

Double Declining Balance Method

Answer 17

uses a rate of depreciation twice that of the straight-line rate, but the asset cannot be depreciated below the salvage value.

Question 18

Capitalized Interest

Answer 18

included in the cost of the asset in the same manner as any other construction cost; it is then written off over the life of the asset as part of the periodic depreciation charges

Question 19

Long Lived Assets Held for Sale: Criteria

Answer 19

(a) the asset is available for prompt sale as is, subject only to customary and usual sales terms for such assets; and (b) the asset sale is probable and generally to be completed within 12 months.

Question 20

Long Lived Assets Held for Sale: Recording

Answer 20

The asset is reclassified to a current asset, and is measured at the lower of its book or fair value less cost to sell and its depreciation (or amortization) discontinues.