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Front 1

PPE are measured at historical cost, which consists of

Back 1

The amount paid and the costs needed to bring the asset to the condition and location necessary for its intended use, e.g., shipping and installation costs.

Front 2

Initial Costs of land include

Back 2

Mortgages, Transaction costs (e.g surveying, legal fees, brokers commissions, title insurance, escrow fees) , site preparation costs, permanent improvements ( landscaping), Other improvements (Side walks, street lights etc..)

Front 3

Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be

Back 3

Deducted from the cost of the land.

Front 4

Purchase price of land $  60,000

Legal fees for contracts to purchase land 2,000

Architects’ fees 8,000

Demolition of the old building on site 5,000

Sale of scrap from old building 3,000

Construction cost of new building 350,000

 

In Burr’s December 31 balance sheet, what amounts should be reported as the cost of land and cost of building?

Back 4

Land should be reported as $64,000 ($60,000 + $2,000 + $5,000 – $3,000). The architect’s fees are included in the cost of the building, which should be reported as $358,000 ($350,000 + $8,000).

Front 5

On January 1, Year 1, Bay Co. acquired a land lease for a 21-year period with no option to renew. The lease required Bay to construct a building in lieu of rent. The building, completed on January 1, Year 2, at a cost of $840,000, will be depreciated using the straight-line method. At the end of the lease, the building’s estimated fair value will be $420,000. What is the building’s carrying amount in Bay’s December 31, Year 2, balance sheet?

Back 5

The amortizable base is $840,000 even though the building will have a fair value of $420,000 at the end of the lease. The latter amount is not a salvage value because the building will become the lessor’s property when the lease expires. Consequently, Year 2 straight-line amortization is $42,000 ($840,000 ÷ 20 years), and the year-end carrying amount is $798,000 ($840,000 – $42,000).

Front 6

Under IFRS, when an entity chooses the revaluation model as its accounting policy for measuring property, plant, and equipment, which of the following statements is correct?

A.Increases in an asset’s carrying amount as a result of the first revaluation must be recognized as a component of profit or loss.

B.When an asset is revalued, individual assets within a class of property, plant, and equipment to which that asset belongs can be revalued.

C.Revaluations of property, plant, and equipment must be made at least every 3 years.

D.When an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be revalued.

Back 6

When an asset is revalued, the entire class of property, plant, and equipment to which that asset belongs must be revalued.

 

Under IFRS, measurement of PPE subsequent to initial recognition may be at fair value at the revaluation date (minus subsequent depreciation and impairment losses). The assumption is that the PPE can be reliably measured. If an item of PPE is revalued, every item in its class also should be revalued.

Front 7

On January 1, Year 1, a company purchased a building for the purpose of earning rental income. The price paid was $100,000. The company classified the building as investment property and accounts for it using the fair value model. The fair values of the property on December 31, Year 1, and December 31, Year 2, are $80,000 and $110,000, respectively. Under IFRS, what effect does this property have on the company’s Year 2 profit or loss?

Back 7

Appreciation gain of $30,000.

Front 8

Cole Co. began constructing a building for its own use in January. During the year, Cole incurred interest of $50,000 on specific construction debt and $20,000 on other borrowings. Interest computed on the weighted-average amount of accumulated expenditures for the building during the year was $40,000. What amount of interest cost should Cole capitalize

Back 8

Material interest costs incurred for the construction of certain assets for internal use are capitalized. The interest to be capitalized is determined by applying an appropriate rate to the average qualifying expenditures accumulated during a given period. However, the interest capitalized may not exceed the amount incurred during the period. Thus, $40,000 of the interest incurred on the construction is capitalized.

Front 9

An expenditure subsequent to acquisition of assembly-line manufacturing equipment benefits future periods. The expenditure should be capitalized if it is a Betterment or Rearrangement?

Back 9

Both

A betterment occurs when a replacement asset is substituted for an existing asset, and the result is increased productivity, capacity, or expected useful life. A rearrangement is the movement of existing assets to provide greater efficiency or to reduce production costs. If the betterment or rearrangement expenditure benefits future periods, it should be capitalized.

Front 10

Depreciation Methods - Sum of Years' Digits Formula

Back 10

Depreciable Base X  (Remaining years in useful life/Sum of all years in useful life)

Front 11

Depreciation Methods - Usage-centered Formula

Back 11

Depreciation base X (Units produced during current period/Estimated total lifetime units)

Front 12

Composite Method applies to groups of 

Back 12

Dissimilar assets with varying useful lives

Front 13

The group method of depreciation applies to groups of

Back 13

Similar assets with varying useful lives

Front 14

Spiro Corp. uses the sum-of-the-years’-digits method to depreciate equipment purchased in January Year 2 for $20,000. The estimated salvage value of the equipment is $2,000, and the estimated useful life is 4 years. What should Spiro report as the asset’s carrying amount as of December 31, Year 4?

Back 14

$3,800 ($1,800 remaining depreciable base + $2,000 salvage value).

Front 15

Frey, Inc., purchased a machine for $450,000 on January 2, Year 1. The machine has an estimated useful life of 4 years and a salvage value of $50,000. The machine is being depreciated using the sum-of-the-years’-digits method. The December 31, Year 2, asset balance, net of accumulated depreciation, should be

Back 15

Year 1:($450,000 – $50,000) × (4 ÷ 10) =$160,000

Year 2:($450,000 – $50,000) × (3 ÷ 10) =120,000

Accum depreciation, 12/31/Year2        $280,000

This amount is subtracted from the historical cost of $450,000 to yield a carrying amount of $170,000.

Front 16

When calculating Accum Depreciation using declining balance method should the carrying amount or the depreciable base be used?

Back 16

The carrying amount. The depreciation expense can not be more than the salvage value. The salvage value should not be subtracted before calculating the depreciation

Front 17

 Which of the following situations is the units-of-production method of depreciation most appropriate?

A) An asset is subject to rapid obsolescence.

B)An asset incurs increasing repairs and maintenance with use.

C) An asset’s service potential declines with use.

D) An asset’s service potential declines with the passage of time.

Back 17

C) An asset’s service potential declines with use.

The units-of-production depreciation method allocates asset cost based on the level of production. As production varies, so will the credit to accumulated depreciation. Consequently, when an asset’s service potential declines with use, the units-of-production method is the most appropriate method.

Front 18

The accounting for a nonmonetary transaction should be based on the ______________ of the asset(s) given up when the exchange lacks commercial substance.

Back 18

Carrying amount.

When cash (boot) is given in such an exchange, the party paying the cash should not recognize a gain. 

Front 19

Campbell Corp. exchanged delivery trucks with Highway, Inc. Campbell’s truck originally cost $23,000, its accumulated depreciation was $20,000, and its fair value was $5,000. Highway’s truck originally cost $23,500, its accumulated depreciation was $19,900, and its fair value was $5,700. Campbell also paid Highway $700 in cash as part of the transaction. The transaction lacks commercial substance. What amount is the new book value for the truck Campbell received?

Back 19

If a nonmonetary exchange lacks commercial substance, it is measured at the carrying amount of the assets given up. Accordingly, unless boot is received, no gain is recognized. Campbell gave boot of $700 and a truck with a carrying amount of $3,000 ($23,000 cost – $20,000 accumulated depreciation). The carrying amount of the new truck is therefore $3,700.

Front 20

On July 1, one of Rudd Co.’s delivery vans was destroyed in an accident. On that date, the van’s carrying value was $2,500. On July 15, Rudd received and recorded a $700 invoice for a new engine installed in the van in May and another $500 invoice for various repairs. In August, Rudd received $3,500 under its insurance policy on the van, which it plans to use to replace the van. What amount should Rudd report as gain/(loss) on disposal of the van in its income statement for the year?

Back 20

The carrying amount includes the carrying value at July 1 ($2,500) plus the capitalizable cost ($700) of the engine installed in May. This cost increased the carrying amount because it improved the future service potential of the asset. Ordinary repairs, however, are expensed. Consequently, the gain is $300 [$3,500 – ($2,500 + $700)].

Front 21

A long-lived asset to be held and used is measured at the 

Back 21

lower of its carrying amount or fair value, but an impairment is recognized prior to disposal only if the carrying amount is not recoverable.

Front 22

WD Mining Company purchased a section of land for $600,000 in Year 1 to develop a zinc mine. The mine began operations in Year 9. At that time, management estimated that the mine would produce 200,000 tons of quality ore. A total of 100,000 tons of ore were mined and processed from Year 9 through December 31, Year 16. During January Year 17, a very promising vein was discovered. The revised estimate of ore still to be mined was 250,000 tons. Estimated salvage value for the mine land was $100,000 in both Year 9 and Year 17. Assuming that 10,000 tons of ore were mined in Year 17, what amount should WD Mining Company report as depletion in Year 17?

Back 22

The original cost of the land was $600,000. The estimated salvage value in both Year 9 and Year 17 was $100,000. The depletion base in Year 9 was therefore $500,000 ($600,000 – $100,000). Half of the estimated 200,000 tons of quality ore were mined in the period Year 9 through Year 16. Thus, $250,000 would have been allocated to the 100,000 tons mined, and the depletion base in January Year 17 would have been $250,000 ($600,000 – $100,000 – $250,000) before the change in estimate. This amount should be allocated over the 250,000-ton revised estimate of available ore. Multiplying by the 10,000 tons actually mined in Year 17 gives the amount of depletion to record of $10,000.

Front 23

A company has a long-lived asset with a carrying value of $120,000, expected future cash flows of $130,000, present value of expected future cash flows of $100,000, and a market value of $105,000. What amount of impairment loss should be reported?

Back 23

An impairment loss is recognized when a long-lived asset’s carrying amount exceeds the sum of its undiscounted cash flows. Because the sum of the undiscounted cash flows ($130,000) exceeds the carrying amount ($120,000), the carrying amount is recoverable. Thus, no impairment is recognized.

Front 24

An impairment loss on a long-lived asset (asset group) to be held and used is reported by a business enterprise in

Back 24

Income from continuing operations.

Front 25

On January 2, Year 1, Reed Co. purchased a machine for $800,000 and established an annual depreciation charge of $100,000 over an 8-year life. At the beginning of Year 4, after issuing its Year 3 financial statements, Reed concluded that $250,000 was a reasonable estimate of the sum of the undiscounted net cash inflows expected to be recovered through use of the machine for the period January 1, Year 4 through December 31, Year 8. The machine’s fair value was $200,000 at the beginning of Year 4. In Reed’s December 31, Year 4, balance sheet, the machine should be reported at a carrying amount of

Back 25

$160,000

The asset should be written down to fair value if the carrying amount is not recoverable. Because the carrying amount ($800,000 cost – $300,000 accumulated depreciation = $500,000) exceeded the recoverable amount ($250,000) at the beginning of Year 4, Reed should have recognized an impairment loss of $300,000 ($500,000 carrying amount – $200,000 fair value at the beginning of Year 4). Accordingly, the new carrying amount was $200,000, and the new annual depreciation expense for the remaining 5-year useful life (Year 4 - Year 8) was $40,000 ($200,000 ÷ 5 years). The machine should be reported at a carrying amount of $160,000 ($200,000 – $40,000 depreciation) on December 31, Year 4.

Front 26

Under IFRS, an asset is impaired when its carrying amount exceeds its recoverable amount. The recoverable amount of an asset is

Back 26

The recoverable amount of an asset is the (a) greater of its fair value minus cost to sell or (b) value in use. Value in use is the present value of the asset’s expected cash flows. The recognized impairment loss is the excess of the asset’s carrying amount over its recoverable amount.

Front 27

According to U.S. GAAP, restorations of carrying value for long-lived assets are permitted if an asset’s fair value increases subsequent to recording an impairment loss for which of the following?

Back 27

Under U.S. GAAP, a previously recognized impairment loss on a long-lived asset to be held and used must not be reversed. The carrying amount of the long-lived asset adjusted for an impairment loss is its new cost basis. However, if the long-lived asset is held for sale, a gain is recognized for a subsequent increase in fair value minus cost to sell. But the gain is limited to the extent of prior write-downs. Furthermore, if the long-lived asset is held to be disposed of other than by sale, it is classified as held and used until disposal.

Front 28

If land and building were purchased as a site for a new structure and the purchaser never intended to use the existing building in its operations, the cost of the old building should be    

Back 28

Classified as land and not depreciated

Front 29

A contributed plant asset for which the fair value has been determined, and for which incidental costs were incurred in acceptance of the asset, should be recorded at an amount equal to its

Back 29

Fair value and incidental costs incurred.

A contributed plant asset should be debited at its fair value plus any incidental costs necessary to make the asset ready for its intended use. Contributions received ordinarily should be credited as revenues or gains in the periods they are received. However, a credit to a revenue or gain is not required for contributions by governments to business enterprises.

Front 30

Under IFRS, investment property accounted for in accordance with the fair value model is measured at the end of each reporting period at its

Back 30

Fair value.

An entity that chooses the fair value model as its accounting policy for investment property must measure all of its investment property at fair value at the end of the reporting period. The best evidence of fair value usually consists of current prices in an active market for similar property in the same location and condition.

Front 31

When an exchange lacks commercial substance the accounting for a nonmonetary transaction should be based on the carrying amount of the asset(s) given up or received when the exchange lacks commercial substance

Back 31

Given Up

Front 32

If a long-lived asset satisfies the criteria for classification as held for sale,

Back 32

It is not depreciated.

Front 33

Changes to a plan of sale may occur because of circumstances previously regarded as unlikely that result in a decision not to sell. In these circumstances, the asset (disposal group) is reclassified as held and used. A reclassified long-lived asset is measured individually at the lower of 

Back 33

(1) carrying amount before the asset (disposal group) was classified as held for sale, minus any depreciation (amortization) that would have been recognized if it had always been classified as held and used, or (2) fair value at the date of the decision not to sell

Front 34

Can a previously recognized impairment loss may not be reversed under U.S. GAAP? IFRS?

Back 34

A previously recognized impairment loss may not be reversed under U.S. GAAP. Under IFRS, an impairment loss (carrying amount > recoverable amount) on an asset (except goodwill) may be reversed if a change in the estimates used to measure the recoverable amount has occurred. Furthermore, IFRS permit an item of property, plant, and equipment to be carried at a revalued amount if its fair value can be measured reliably. Thus, an increase in excess of the prior carrying amount is permitted by IFRS.