Exam 10: Depreciation,Amortization,and Impairment

Choose the incorrect statement concerning the half-year convention as it applies to amortization.

For financial statement purposes (for a non-manufacturing company),amortization is a variable (as opposed to a fixed) expense (in total) if the amortization method used is:

When the revaluation model is used,the carrying value of the assets after revaluation is the same,regardless of whether the elimination or proportionate method is used.

A special machine was acquired on January 1,2001 that cost $66,000.Estimated life was 5 years (or 50,000 units of output) and residual value $6,000.Complete the following: Carrying Value Amortization at December 31, 2002 Amortization Method Expense for 2002 (a) Straight-line. \_ \_ (b) Sum-of-the-years'-digits. $\quad$ $___ $\quad$ $___ (c) Declining balance. $\quad$ $___ $\quad$ $___ (d) Productive output (output 2001; 6,000 ; 2002,5,000 ).... $\quad$ $___ $\quad$ $___

Component accounting requires the same amortization method be applied for all of an asset's major components.

If a company disposes of the last asset in a class and still has a balance in its UCC pool,in:

All other factors remaining constant,straight-line amortization in a manufacturing situation produces a constant unit product cost,whereas output amortization,generally produces a changing unit product cost.

On January 1,2014,the Rose Company purchased a machine costing $100,000.The machine is a Class 8 asset for tax purposes with a CCA rate of 20%.It has an estimated $20,000 residual value at the end of its economic life.Assuming the company uses the capital cost allowance method; calculate the amount of CCA deduction for tax purposes for the year 2014.Rose Company has a calendar year-end and adjusting entries are only made at year-end.

Conceptually,the cost of a capital asset (i.e.,property,plant and equipment,but not land) represents a long-term prepayment of expense.

On July 1,2013,Rankin Co.purchased equipment for $126,000.Residual value was estimated to be $3,500.The equipment will be amortized over 10 years using the double-declining balance method.Counting the year of acquisition as one-half year,calculate the amount Rankin should record as amortization expense for 2014 on this equipment.

When using the inventory appraisal system of amortization,the decline in the total appraisal value during the period is recorded directly in the asset account as amortization expense.

When a capital asset with a 5-year estimated useful life is sold during the second year,how would the use of the SYD method of amortization,instead of the straight-line method,affect the gain or loss on the sale? Gain Loss 1 No effect No effect 2 Increase Increase 3 Decrease Increase 4 Increase Decrease

On January 1,2001,JN acquired three identical trucks at a cost of $24,000 each.They have an estimated useful life of four years and a residual value of 10 percent of cost.On January 2,2002,one truck was damaged in an accident.It was a complete loss except for salvage of $1,400 cash.The company uses group amortization for the trucks.JN has a December 31 year-end and only accounts for amortization at year-end. (a) Give the entry to record the effects of the accident January 2,2002. (b) Give the adjusting journal entries to record amortization expense at the end of 2001 and 2002.

(Appendix) ABC adheres to IFRS and applies the revaluation model to account for its Machinery.Prior to 2009,there was no balance in the company's Revaluation Surplus (OCI) accounts relating to its long-lived assets.The following year-end data pertains to the company's machinery: Cost Accumulated Depreciation Fair Value 2009 \ 180 10 \ 120 2010 \ 180 20 \ 125 2011 \ 180 30 \ 130 Required: For each year,provide the revaluation entries assuming that ABC applies: a) The elimination method and, b) The proportional method.

Wolf Co.purchased machinery that was installed and ready for use on January 3,2014,at a total cost of $92,000.Residual value was estimated at $12,000.The machinery will be amortized over five years using the double-declining balance method.Calculate for the year 2015,the amount Wolf should record amortization expense on this machinery.Wolf Co.has a December 31 year-end and adjusting entries are only made at year-end.

The 2009 revaluation journal entry would include

On January 1,2001,RST purchased 10 identical trucks that cost $24,000 each.Each truck has an estimated useful life of 4 years and a residual value of 10 percent of cost.On January 19,2002,one truck was destroyed in an accident; salvage recovery was $6,500.These trucks are being depreciated using the group system,applied on the straight-line basis.The accounting period ends December 31.RST has a December 31 year-end and only accounts for amortization at year-end. Required: Complete the following Amortization Accumulated schedule: Date Event Trucks Expense Amortization 1-1-2001 12-31-2001 Balance 12-31-2001 1-19-2002 12-31-2002 Balance 12-31-2002

ABC Aerospace Inc.adheres to IFRS and applies component accounting to its major long-lived asset categories.Accordingly,the following data pertain to the company's fleet of test aircraft as at December 31,2013 (in millions $): Category Accumulated Depreciation Net Book Value Avionics \ 100 \ 48 \ 52 Fuselage \& Wings \ 200 \ 120 \ 80 Aircraft Engines \ 20 \ 16 \ 4 Additional information includes the following: - The avionics have a salvage value $2 and a remaining useful life of ten years and are depreciated on a straight-line basis. - Both the fuselage and wings and aircraft engines are depreciated at a declining rate of 25%. On July 1^st,2014,the aircraft's engines were all disposed of for $1.5 million.On that same date,new engines were purchased in the amount of $10 million with a useful life of 20 years and no salvage value.Determine the gain or loss on disposal of the old aircraft engines.

ABC Aerospace Inc.adheres to IFRS and applies component accounting to its major long-lived asset categories.Accordingly,the following data pertain to the company's fleet of test aircraft as at December 31,2013 (in millions $): Category Accumulated Depreciation Net Book Value Avionics \ 100 \ 48 \ 52 Fuselage \& Wings \ 200 \ 120 \ 80 Aircraft Engines \ 20 \ 16 \ 4 Additional information includes the following: The avionics have a salvage value $2 and a remaining useful life of ten years and are depreciated on a straight-line basis. Both the fuselage and wings and aircraft engines are depreciated at a declining rate of 25%. On July 1^st,2014,the aircraft's engines were all disposed of for $1.5 million.On that same date,new engines were purchased in the amount of $10 million with a useful life of 20 years and no salvage value.The new engines are to be depreciated on a straight-line basis.What is the carrying value of ABC's aircraft engines on December 31,2014?

When the revaluation model is applied,amortization expense must be taken annually for depreciable assets.