SS F: Property, Plant, Equipment & Intangibles

Question 1

What is depreciation and amortization?

Answer 1

Depreciation: Allocation of a PPE’s cost over useful life

Amortization: Allocation of costs of intangible assets over useful lifetime

Question 2

When are PPE and intangible assets recognized as an asset?

Answer 2

1. When it is portable that they will create future economic benefits
2. When its costs can be measured reliably

Question 3

How do you calculate the cost of PPE?

Answer 3

1. Purchase price
2. Cost attributed to “fixing” asset
3. Initial estimate of costs of dismantling and remove item and restoring site

Question 4

What are costs that cannot be classified as directly attributable of a PPE item?

Answer 4

1. Cost of opening new facility
2. Cost of introducing new product or service
3. Cost of conducting business in ew location
4. Administration and overhead costs

Question 5

What are land improvements that should not be included in PPE cost calculation?

Answer 5

1. Paving
2. Fencing
3. Lighting
4. Security systems

Question 6

What are capital expenditures?

Answer 6

Expenditures that are supposed to increase the asset’s capacity or extend its life span

Question 7

What are the two criteria for capital expenditures?

Answer 7

1. When the cost expends useful life, should be recorded as asset
2. When cost repairs the asset should be recorded as expense

Question 8

Carrying amount formula

Answer 8

Carrying amount = Cost of item - accumulated depreciation

Question 9

Double-declining-balance method

Answer 9

Depreciation rate = (1 / useful life in years) * 2

Question 10

What is impairment of an asset?

Answer 10

Occurs when the carrying amount of the asset is higher than its recoverable amount

Question 11

What is the recoverable amount?

Answer 11

(The higher of fair value - cost to sell) and value-in use

Question 12

What is depletion?

Answer 12

The expense of natural resources. Depletion expenses is the portion of the costs of a natural resource that is used in a specific period.

Question 13

What are intangible assets?

Answer 13

Assets without physical substance and are usually long-lived

Question 14

Goodwill formula

Answer 14

Goodwill = Purchase price - acquired company’s net assets

Question 15

What are the three main types of PPE translations that appear on the statement of cash flows?

Answer 15

1. Sales
2. Acquisitions
3. Depreciation

Question 16

Asset turnover formula

Answer 16

Asset Turnover = sales / average assets

Question 17

Return on asset formula

Answer 17

ROA = net profit / average assets

Question 18

Average assets formula

Answer 18

Average assets = (beginning + ending balance) / 2