Exam 11: Depreciation, Impairment, and Disposition

Ella Inc. purchased machinery that was installed and ready for use on January 3, 2019, at a total cost of $460,000. Residual value was estimated at $60,000. The machinery will be depreciated over five years using the double-declining-balance method. For the calendar year 2020, Ella should record depreciation expense on this machinery of

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Question 1

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Calculation of ratios Vulture Ltd. provides the following selected information for the calendar years 2020 and 2019: Net revenue Net income Accounts receivable Inventory Total assets Total liabilities. \ 320,000 75,000 33,000 61,000 210,000 84,000 \ 26,000 55,000 176,000 74,000 Instructions For 2020, calculate the following ratios to two decimals: a) Asset turnover ratio b) Profit margin ratio c) Rate of return on assets

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Question 2

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a) Asset turnover ratio = net revenue ÷ average total assets
Average total assets = ($210,000 + $176,000) ÷ 2 = $193,000
ATR = $320,000 ÷ $193,000 = 1.66
b) Profit margin ratio = net income ÷ net revenue x 100
PMR = $75,000 ÷ $320,000 x 100 = 23.44%
c) Rate of return on assets = net income ÷ average total assets x 100
ROA = $75,000 ÷ $193,000 x 100 = 38.86%

Impairment Assume the same information as in the above question"Five identical vehicles that cost $500,000 (total) are acquired on April 1, 2019. Their estimated residual value is $20,000 and expected life is eight years. These assets are Class 10 with a maximum CCA rate of 30%. The company has a December 31 year end.", except for the following: Cougar's review for impairment indicates the following: Axrent's value in use..................................$64,000 Fairvalue len dispostl costs.........................73,000 Instructions a) Calculate the recoverable amount. b) Calculate the impairment loss.

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Question 3

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a)Recoverable amount: $73,000, the higher of the asset's value in use of $64,000 and its fair value less disposal costs of $73,000.
b) Impairment loss:
Carrying amount..............................$70,000
Recoverable amount........................73,000
Impairment loss.................................none
Because the recoverable amount is higher than the asset's carrying amount, there is no impairment loss.

Factors to consider in the depreciation process do NOT include

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Question 4

Explain why depreciation is not a method of determining an asset's declining value or a matter of valuation.

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Question 5

In 2020, Elk Corporation purchased a mine for $200 million (of this, $30 million was applicable to the land). An independent evaluation estimated the mine's reserves at 7.5 million tonnes. During 2020, Elk extracted 900,000 tonnes. Elk's depletion expense for 2020 is

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Question 6

Consider an asset that was separated into its main components (A, B, and C). The $1,200,000 purchase price was allocated to these components in equal proportions. The useful lives are 12, 4, and 7 years for components A, B, and C respectively. Components A and B are not expected to have any residual value, but Component C is expected to have a residual value of $18,000. Assuming straight-line depreciation, total annual depreciation expense, to the nearest dollar, relating to these assets is

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Question 7

On July 1, 2020, Eland Corp. purchased a machine for $375,000. The machine has an estimated useful life of five years and a residual value of $50,000. The machine is being depreciated using the double-declining-balance method. For the year ended December 31, 2020, Eland should record depreciation expense on this machine of

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Question 8

A general description of the depreciation methods applicable to major classes of depreciable assets

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Question 9

On March 24, 2019, Dagger Ltd. purchased a new machine for $50,000. This machine has an eight-year estimated useful life, an estimated residual value of $2,500, and is expected to produce 95,000 units over its useful life. The machine produced 5,500 units in 2019 and 6,500 units in 2020. Using the unit of production method, to the nearest dollar, the related Accumulated Depreciation account on the adjusted trial balance at December 31, 2020 would be

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Question 10

For income statement purposes, depreciation is a decreasing expense if the depreciation method used is

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Question 11

Swallow Ltd. takes a full year's depreciation expense in the year of an asset's acquisition and no depreciation expense in the year of disposition. Data relating to one of Swallow's pieces of equipment at December 31, 2019, are as follows: Acquisition year...........................2017 Cost..............................................$280,000 Residual value..............................40,000 Accumulated depreciation............219,520 Estimated useful life.....................5 years Using the same depreciation method that was used in 2017, 2018, and 2019, how much depreciation expense should be recorded in 2020 for this asset?

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Question 12

During 2020, Jersey Ltd. sold equipment that had originally cost $206,000 for $127,600. This resulted in a gain of $9,600. The balance in the Accumulated Depreciation-Equipment was $660,000 on January 1, 2020, and $630,000 on December 31, 2020. No other equipment was disposed of during 2017. Depreciation expense for 2020 was

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Question 13

IFRS require that assets must be assessed for indications of impairment

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Question 14

On January 1, 2010, Antelope Ltd. purchased a building for $800,000. At this time, the building had an estimated residual value of $300,000 and an estimated useful life of 20 years. The company has recorded monthly depreciation using the straight-line method. On January 1, 2020, it is decided to put the building up for sale for $1,200,000. At December 31, 2020, the building is still for sale. The correct depreciation to record for 2020 is

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Question 15

On January 1, 2020, the Accumulated Depreciation-Machinery account of Bonobo Corp. showed a balance of $760,000. At the end of 2020, after the adjusting entries were posted, it showed a balance of $820,000. During 2020, one of the machines that cost $240,000 was sold for $118,000 cash. This resulted in a loss of $7,000. Assuming that no other assets were disposed of during the year, depreciation expense for 2020 was

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Question 16

When all or a portion of shareholders' capital investments are returned to them, this is called a

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Question 17

Golden Goose Corp. has a piece of equipment, which is being held for sale, and has a carrying value of $100,000. When the decision to sell had been made, the equipment had been written down from a carrying value of $180,000. At December 31, 2020, it is estimated that the fair value less disposal costs (net realizable value) is $130,000. For the calendar year 2020, Golden Goose should recognize a recovery (gain) of

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Question 18

A major objective of capital cost allowance for tax depreciation is to

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Question 19

On January 3, 2018, City Corp. purchased machinery. The machinery has an estimated useful life of eight years and an estimated residual value of $67,500. City uses straight-line depreciation for all their machinery, and recorded $115,500 depreciation expense for 2020. The acquisition cost of the machinery was

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Question 20

Showing 1 - 20 of 88

Factors to consider in the depreciation process do NOT include

Explain why depreciation is not a method of determining an asset's declining value or a matter of valuation.

In 2020, Elk Corporation purchased a mine for $200 million (of this, $30 million was applicable to the land). An independent evaluation estimated the mine's reserves at 7.5 million tonnes. During 2020, Elk extracted 900,000 tonnes. Elk's depletion expense for 2020 is

A general description of the depreciation methods applicable to major classes of depreciable assets

For income statement purposes, depreciation is a decreasing expense if the depreciation method used is

IFRS require that assets must be assessed for indications of impairment

When all or a portion of shareholders' capital investments are returned to them, this is called a

A major objective of capital cost allowance for tax depreciation is to

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