Exam 10: Depreciation, Amortization, and Impairment

Once assets are classified as held for sale, depreciation stops.

Fractional year amortization can be determined in two different ways for declining balance methods, but only one way for sum of years' digits.

The assets of the Aerospace Inc. (a separately incorporated entity fully owned subsidiary of ABC Transport Inc.) showed the following asset carrying values on December 31st, 2013 (in millions): Cash \ 100 Accounts Receivable \ 20 Inventories \ 10 Property. Plant \& Equipment (net) \ 200 Patents (net) \ 20 Goodwill \ 75 Total \ 425 On December 31st, 2013, the fair values of the assets listed above were as follows: Cash \ 100 Accounts Receivable \ 15 Inventories \ 25 Property. Plant \& Equipment (net) \ 120 Patents (net) \ 60 Total \ 320 Both ABC and Aerospace Inc. adhere to IFRS. -Assume that ABC Inc. has a single asset with a historical cost of $100 and accumulated amortization of $50. The asset could be sold today for $60 less a 10% sales commission. Alternatively, ABC could use the asset to generate discounted operating cash flows of $40 throughout its remaining useful life and then sold for discounted proceeds amounting to $4. Assuming that ABC adheres to IFRS, is the asset impaired?

Which of the following amortization methods produces the highest amortization expense in the first year of life of an asset that cost $10,000, has an estimated useful life of four years, and an estimated residual value of $1,500?

One impairment indicator may be management's decision to retire a revenue generating asset prematurely.

Under the elimination method of revaluation, the accumulated depreciation account is eliminated against the historical cost of the asset prior to any revaluation.

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.

If an industrial firm uses the units-of-output method for computing amortization on its only plant asset, factory machinery, the credit to accumulated amortization from period to period during the life of the firm will vary with sales revenue.

Which of the following categories of long-lived assets may or may not be amortized?

Goodwill impairment losses are reversible under IFRS but not under ASPE.

GAAP requires that fractional year amortization be computed to the nearest month.

The assets of the DEF Inc. (a separately incorporated entity fully owned of subsidiary GHI Transport Inc.) showed the following asset carrying values on December 31^st, 2014 (in millions): Cash \ 100 Accounts Receivable \ 20 Inventories \ 10 Property. Plant \& Equipment (net) \ 200 Patents (net) \ 20 Goodwill \ 75 Total \ 425 On December 31^st, 2014, the fair values of the assets listed above were as follows: Cash \ 100 Accounts Receivable \ 15 Inventories \ 25 Property. Plant \& Equipment (net) \ 120 Patents (net) \ 60 Total \ 320 Both DEF and GHI Inc. adhere to IFRS. Required: Provide the journal entry to record the impairment loss (if any) above.

Which of the following is not necessarily one of the four factors leading to the periodic determination of amortization expense?

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

The assets of the Aerospace Inc. (a separately incorporated entity fully owned subsidiary of ABC Transport Inc.) showed the following asset carrying values on December 31st, 2013 (in millions): Cash \ 100 Accounts Receivable \ 20 Inventories \ 10 Property. Plant \& Equipment (net) \ 200 Patents (net) \ 20 Goodwill \ 75 Total \ 425 On December 31st, 2013, the fair values of the assets listed above were as follows: Cash \ 100 Accounts Receivable \ 15 Inventories \ 25 Property. Plant \& Equipment (net) \ 120 Patents (net) \ 60 Total \ 320 Both ABC and Aerospace Inc. adhere to IFRS. -Now suppose that on January 2^nd, 2014, independent research reveals that Aerospace's patents have a market value of $200. The carrying value of Aerospace's Goodwill on that date would be:

An asset is said to be impaired when its carrying value exceeds its recoverable amount.

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 Cost Accum ulated Depreciation Net Book Value Avionics \ 100 \ 48 \ 52 Fuselage \& Wings \ 200 \ 120 \ 80 Aircraft E ngines \ 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%. Assuming there were no acquisitions or disposals made, compute the depreciation expense for 2014 (in millions $). Round your answers to the nearest whole dollar.

Cummings corporation purchased new equipment on January 1, 2014. The equipment cost $8,800, had an estimated useful life of four years, and a residual value of $400. Using declining balance amortization, the amortization expense recorded at the end of 2015 should be:

Store of Values Inc. has a new building that cost $400,000. It will be depreciated using DB amortization. The estimated residual value of the building is $50,000 and it has an expected useful life of 10 years. Assuming the first year's amortization expense was recorded properly, what would be the amount of amortization expense for the second year?

CK purchased a machine that cost $26,000 on January 1, 2001. The estimated useful life was 10 years and the residual value was $4,000. Complete the following schedule to reflect amortization expense for 2002 and the balance in the accumulated amortization account at the end of 2002, for each amortization method indicated. CK's year-end is December 31 and only accounts for amortization at year-end. Amortization Method Amortization Expense for 2002 Balance in Accumulated Amortization at DeC, 31, 2002 (a) Straight-line \ underline (b) Sum-of-the-years'-digits \ underline (c) Declining balance underline underline (d) Productive output (Units: total estimated, 20,000; underline underline actual | 2001, 4,000; 2002, 2,000)