Exam 8: Property, plant and Equipment

What accounting issue arises for recognizing non-monetary transactions?

Explain why earnings manipulation of property,plant and equipment can have long-lasting impact on the financial statements.

Bountiful 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.Assuming the company uses straight-line depreciation,what is the net book value of the asset on December 31,2018?

Using the conceptual framework,explain why there is a difference between IFRS and ASPE in accounting for interest capitalization for property,plant and equipment.

The following entry was recorded by Woodrow Inc.: What is the effect on Woodrow's financial statements?

An important piece of equipment requires major maintenance.Management has decided to upgrade the machine,by installing a new component which will extend the useful life of the machine from the three remaining years to five more years.The regular part could have been purchased for $75,000 but a more reliable part cost $225,000.The replaced part was not set up as a separate asset when the machine was purchased. Prepare the necessary journal entry to record the transaction.Provide a short justification for your chosen treatment.

Will the method of depreciation affect the net cash outflow associated with the purchase and subsequent sale of property,plant and equipment?

What issue does NOT relate to the subsequent measurement of property,plant and equipment?

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 accumulated depreciation at the end of 2018.

Base-Forward 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 depreciation expense for 2018?

What costs should not be capitalized to "equipment"?

What costs should not be capitalized to "building"?

Steep Mountain Ski Resort has been granted a 20-year permit to develop and operate a snow skiing operation in a national park.After 20 years the site must be returned to its original condition.The roads may remain,as they can be used for fire prevention purposes.In the spring and summer before the ski hill opened,the following transactions and events occurred: i.Installed three ski lifts for a total cost of $120,000,000. ii.Built a ski chalet for $60,000,000. iii.Removed trees and cleared the area for ski runs at a cost of $20,000,000. iv.Received $8,000,000 for the trees that were removed for the ski runs. v.Put in roads for a cost of $68,000,000. vi.Paved an area at the base of the mountain for a parking lot at a cost of $11,000,000. vii.Estimated that it would cost $36,000,000 to dismantle the ski lifts in 20 years but that these lifts could be sold as scrap steel for $2,000,000.The chalet could be removed for $24,000,000.Reforesting the site would cost $7,000,000.Removing the parking lot will cost $3,800,000. Required: a.Prepare journal entries to record transactions i.to vi. b.Prepare a journal entry to record transaction vii.Assume all these costs will be set up in a single account called "site restoration cost." Assume a 6% discount rate.Round to the nearest dollar. c.Record all year-end journal entries for the above items for the first year of operations.The company uses straight-line depreciation for all assets.Round to the nearest dollar.

Coffee-Bean Company built two similar buildings.Each building took one year to build and required $25 million in construction costs.Given the Company's limited internal financial resources,only Building Hazel could be internally financed;Building Cinnamon was financed by a $20 million loan evenly over the year (i.e. ,zero at the beginning and increasing to $20 million by the end of the year).The interest rate on the loan is 8%. Both projects were finished on December 31,2019 and were ready for occupancy immediately.The Hazel building will have an estimated useful life of 30 years while the Cinnamon building will have an expected useful life of 40 years.Neither building will have a residual value.The Company uses the straight-line method for depreciation. Required: a.How much interest cost can be capitalized on Building Cinnamon? b.What will be the annual depreciation expense for each of the two buildings? c.ASPE allows interest capitalization while IFRS recommends capitalization of interest on construction-specific loans.Ignoring the complexities of how to determine how much interest to capitalize,which treatment of interest costs is conceptually more correct? Explain your conclusion. d.Why can interest costs not continue to be capitalized after the self-construction period is completed?

Which question arises at the time property,plant,and equipment is derecognized?

ReelGood Corp.purchased equipment on January 1,2018 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.Assuming the double-declining-balance depreciation method is used,what is the net book value (carrying value)of the asset on December 31,2018?

What does a "gain on disposal of property,plant and equipment" mean? Does a gain suggest good or excellent management and a loss on disposal indicate poor management? Explain your conclusion.

What is the meaning of "units-of-production method"?

On March 1,2019,Pear Company (PC)had been renting its office building for several years and decided to have a new office building constructed.On April 1,2019,it acquired land with an abandoned warehouse on it for $100,000.Other costs included: How much will be capitalized to "land" in fiscal 2019?

On January 1,2018,Pheta Company purchased a machine for $114,000.It has an estimated four-year life and a residual value of $45,000.The machine is expected to be used for a total of 4,600 hours over the four years.During 2018,it was used for 1,900 hours. Required: How much is the depreciation expense for 2018 under the units-of-production method?