Exam 8: Property, plant and Equipment

Celtic Company bought three used machines located in Toronto for $20,000,000.The arrangement with the seller is to move all the equipment to Celtic's factory in Edmonton.It is understood that some of the equipment will be sold as scrap or disassembled and used as spare parts.A careful inventory of all the equipment is shown below.Celtic's plans are to maximize the value of each item by using it in its most beneficial manner. Required: Allocate the purchase price among the assets acquired.

What costs should not be capitalized to "building"?

A large piece of earth-moving equipment was upgraded at a cost of $440,000 so that it could self-unload.After the upgrade was completed,management estimated that this feature would save the company $40,000 a year for the next six years. Prepare the necessary journal entry to record the transaction.Provide a short justification for your chosen treatment.

What is the accounting treatment recommended under IFRS for interest capitalization for property,plant and equipment (PPE)?

Francisco purchased a machine on Jan 1,2016 for $600,000.The machine had an estimated useful life of 10 years and an estimated residual value of $10,000.The company uses straight-line depreciation and records monthly depreciation.The machine was sold on December 31,2018 for $350,000.What was the gain/loss on disposal of the machine?

Welcome Corporation purchased equipment for $267,000.The equipment is estimated to have a useful life of 10 years and a residual value of $27,000.Welcome uses straight-line depreciation and has a December 31 year end.On January 1,2018,the net book value of the equipment is $211,000.What is the date of purchase of the equipment?

What is the meaning of "net realizable value"?

Seneca Valley owns a machine that it purchased on Jan 1,2016 for $600,000.The machine had an estimated useful life of 5 years and an estimated residual value of $100,000.The company uses the declining balance method with a rate of 40%.The machine was sold on December 31,2018 for $140,000.What was the depreciation expense for 2016?

Hotel-R-Us owns a machine that it purchased on Jan 1,2016 for $600,000.The machine had an estimated useful life of 5 years and an estimated residual value of $100,000.The company uses the declining balance method with a rate of 20%.The machine was sold on December 31,2018 for $140,000.What was the accumulated depreciation at December 31,2018?

Billu Limited purchased equipment on January 1,2015 for $275,000.It was estimated that the equipment would have a residual value of $25,000 at the end of its useful life.The asset's useful life was estimated at 5 years or 10,000 units of output.The company has a December 31 year end.Additional information: Assuming the company uses the units-of-production depreciation method,calculate the depreciation expense for 2018.

Ontario Ltd.purchased a machine on Jan 1,2016 for $750,000.The machine had an estimated useful life of 5 years and an estimated residual value of $50,000.The company uses straight-line depreciation and records monthly depreciation.The machine was sold on December 31,2019 for $200,000.What was the gain/loss on disposal of the machine?

Under ASPE,what is the acceptable treatment for borrowing costs on a self constructed property,plant and equipment?

Grape Company (GC)had been renting an office building for several years.On January 1,2019,GC decided to have a new office building constructed.On that date,it acquired land with an abandoned warehouse on it for $350,000.Other costs included the following: Required: a.Calculate at what amount GC should record the (i)land and (ii)building. b.Assume that the building was completed and occupied on December 31,2019.It has an estimated useful life of 40 years,with residual value of $140,000.Calculate depreciation for 2020 using (i)the straight-line method and (ii)the double declining balance method. c.Assume that management decided to use straight-line depreciation for the building.By 2023 GC had grown considerably and needed to relocate for more space;it sold the land and building to Macaw Company on July 1,2023 for $1,350,000.Assume depreciation expense has already been recorded for the first six months of the year (Jan.1,2023 to June 30,2023).Prepare all journal entries required relating to the land and building accounts on July 1,2023.

What factor will not affect the estimated useful life of property,plant or equipment?

What is the effect of overstating 2018 depreciation expense?

What is the meaning of "historical cost"?

A machine was purchased during 2019 for $3,750,000.At the time of purchase it was estimated that the machine would have a useful life of ten years and a residual value of $750,000.During 2025 the machine was sold for $1,850,000.The company uses straight-line depreciation,but does not record depreciation expense in the year of acquisition or disposal. Required: a.Prepare the journal entry to record the derecognition of the asset in 2025. b.Assume that rather than using the straight-line method,the company uses the declining balance method of depreciation at a 20% rate.Prepare the journal entry to record the derecognition of the asset in 2025.

What is the meaning of "depreciation"?

Which of the following is a concern on the initial recognition of property,plant and equipment?

CeeMore owns a machine that it purchased on Jan 1,2016 for $400,000.The machine had an estimated useful life of 10 years and a production capacity of 80,000 units and was expected to have no residual value.The company uses the units-of-production method to record depreciation.The machine produced 15,000 units in 2016,18,000 units in 2017 and 25,000 units in 2018.The machine was sold on December 31,2018 for $350,000.What was the accumulated depreciation at the end of 2017?