Property Plant & Equipment (F4)

Question 1

Sum of the Year’s Digits

Answer 1

N * (N+1) / 2
4*5/2=10
Year 1 = 4/10 * Book Value
Always multiply by original cost

Question 2

Impairment

Answer 2

No impairment if Future CF > Carrying amount

Recoverable Amount = Greater of fair value less cost to sell and present value of future cash flows
*IFRS = > of fair value less cost to sell or value in use

Impairment = Carrying amount - recoverable amount

Question 3

Full Costing Method

Answer 3

Total Cost / Tons = Cost per Ton
Cost per ton * tons extracted = year’s depletion

*Successful efforts take fraction of successful exploration

Question 4

Double-Declining Balance

Answer 4

Cost / Useful Life * 2

• No salvage value
• Useful life same every year

Question 5

Restoration of carrying value

Answer 5

GAAP: Only held for disposal
IFRS: Held for use or disposal

Question 6

Accumulated Depreciation

Answer 6

Dr | Cr
| Beg Balance 600
Disposal 10 |
| Depreciation Expense 210
|Ending Balance 800

Question 7

Net Equipment

Answer 7

Beg Cost - Acc Dep
\+ Purchases
- Disposals
- Depreciation
= End Cost - Acc Dep

Question 8

Interest Capitilization

Answer 8

200 * 12/12 = 200
600 * 8/12 = 400
300 * 1/12 = 25
AAA = 625

500 * .12 + 800 * .10 = 140 Actual Interest
500 * .12 + (625 - 500)*.10 = 72.5 Avoidable Interest

• Capitalized = Lesser of Actual and Avoidable = 7.25
• 500 is construction loan
• (625-500) = AAE - Construction Loan

Question 9

Interest rate for capitlization

Answer 9

6,000 face * .08 = 480
8,000 face * .09 = 720
480 + 720 = 1,200
6,000 + 8,000 = 14,000
1,200 / 14,000 = 8.57%