Exam 8: Property, Plant and Equipment

Bountiful Limited purchased equipment on January 1, 2019 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, 2022?

On March 1, 2019, Penguin 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: Demolition of warehouse 20,000 Legal fees for purchase of land 2,400 Construction costs of new building 400,000 Proceeds from salvage of warehouse materials 4,000 Installation of wiring and plumbing fixtures 16,000 Architectural fees 24,000 How much will be capitalized to "building" in fiscal 2019?

Discuss how a company can manipulate earnings through estimates used in depreciation.

Praguian Company built two similar buildings. Each building took one year to build and required $30,000,000 in construction costs. The Company had limited internal financial resources, so it could fund only Building A internally and financed Building B by borrowing the $30,000,000 evenly over the year (i.e., zero at the beginning and increasing to $30 million by the end of the year). The interest rate on the loan is 10%. Both projects were finished on December 31, 2021 and were ready for occupancy immediately. The buildings are estimated to have a useful life of 20 years and no residual value. The Company uses the straight-line method for depreciation. Required: a. How much interest cost can be capitalized on Building B? 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?

Francisco purchased a machine on Jan 1, 2019 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, 2024 for $350,000. What was the gain/loss on disposal of the machine?

Seall-Test Ltd. owns a machine that it purchased on Jan 1, 2019 for $600,000. The machine had an estimated useful life of 10 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, 2021 for $140,000. What was the depreciation expense for 2020?

Ceila Manufacturing purchased equipment on January 1, 2021 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 the double-declining-balance depreciation method, what is the depreciation expense for 2021?