Exam 10: Depreciation, Amortization, and Impairment

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. -Given the information provided above, what would be the carrying value of Aerospace Inc's Property, Plant and Equipment on January 1^st, 2014?

On January 1, 2001, FR purchased a machine that cost $50,000 (estimated 10-year life and residual value $6,000). FR's president is considering several amortization methods that could be used for this machine. For analytical purposes, you have been asked to complete the following schedule (round all amounts to the nearest dollar). FR'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) SYD \ \ (c) DDB \ \ (d) Productive output (Units: total estimated, 20,000; actual | 2001, 4,000; 2002, 2,000) underline \

Information has been collected regarding Black Company's asset group that includes Goodwill. Black company follows ASPE. At December 31^st, 2015, the assets of the Black company's asset group are shown as follows (in millions of dollars) on the company's balance sheet: Cost Accumulated Depreciation Net Book Value Current Assets \ 300 n/a 300 Goodwill \ 400 / 400 Equipment \ 1.400 800 600 Buildings \ 2.100 600 1.500 Patent Rights \ 200 80 \ 120 \ 4,400 \ 1,480 \ 2,920 Liabilities (\ 520) (\ 520) The fair values/recoverable amounts of the individual identifiable assets and liabilities are shown below (note the exclusion of the Goodwill from above since Goodwill is not identifiable): Current Assets \ 300 Customer Lists \ 500 (previously unidentified) Equipment \ 250 Buildings \ 1,000 Patent Rights \ 200 Liabilities (\ 520) The value of the asset group as a whole is $1,9 million, while estimated selling costs are $100,000. Prepare the journal entries to record the impairment of Goodwill as well as any other assets under ASPE.

The Marc Corporation purchased factory equipment that was installed and put into service on January 2, 2013, at a total cost of $48,000. Residual value was estimated at $3,000. The equipment is being amortized over four years using the double-declining balance method. Calculate for the year 2014, the amount Marc should record amortization expense on this equipment.

If a company attempts to take CCA in excess of its UCC balance for the asset class in question, this would result in:

Straight-line amortization emphasizes that the service value of the asset declines primarily as a function of:

Asset groups under ASPE include both assets and liabilities, while cash generating units (CGUs) under IFRS include only assets.

Under IFRS, depreciation is never taken on Investment Property.

RB's plant building (original cost $600,000; estimated useful life, 30 years, residual value, $120,000) no longer has space for storage of raw materials. At the start of Year 21, the company purchased an addition (a wood building) which was attached to the plant building. The wood building cost $60,000 and, under normal conditions, would have a useful life of 15 years and no residual value. Give the entry that RB should make at the end of the accounting period, December 31, Year 21, to record amortization expense, assuming straight-line amortization for these capital assets. Clearly explain the basis for any assumptions you have made. $\begin{array} { | l | l | } \hline \text { Amortization Expense } & 22,000 \\\hline \text { Accumulated Amortization } & 22,000 \\\hline \$(600,000-\$ 120,000) / 30=&\$ 16,000 \\\hline & \\\hline \$ 60,000 / 10 = & \$ 6,000 \\\hline\end{array}$

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. -Has the aerospace division experienced impairment? If so, by how much?

On January 1, 2014, CT purchased a machine that had a list price of $24,960. CT paid cash $12,000 and executed a one-year note for the balance. No interest was specified in the note; however, the going rate of interest was 8 percent. Assume an estimated life of six years and no estimated residual value. Straight-line amortization is used. Amortization expense for the year ending December 31, 2014, would be $___________________.

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. -Given the information provided above, what would be the carrying value of Aerospace Inc's Goodwill on January 1^st, 2014?

A firm depreciates its plant assets by applying the double declining balance method. Its policy is to switch to the straight-line method in the year in which continued application of the DDB method would result in excessive total amortization. One of the assets recently purchased cost $10,000, has a useful life of four years, and a $4,000 estimated residual value. What is the amortization expense in each of the last three years of this asset's life?

On January 1, 2001, RST purchased 10 identical trucks that cost $24,000 each. Each truck has an estimated useful life of 4 years and a residual value of 10 percent of cost. On January 19, 2002, one truck was destroyed in an accident; salvage recovery was $6,500. These trucks are being depreciated using the group system, applied on the straight-line basis. The accounting period ends December 31. RST has a December 31 year-end and only accounts for amortization at year-end. Required: Complete the following schedule: Amortization Date Event Trucks Expense Accumulated Amortization 1-1-2001 12-31-2001 Balance 12-31-2001 1-19-2002 12-31-2002 Balance 12-31-2002

Recording periodic amortization on the basis of historical cost may result in holding back insufficient assets to replace fully depreciated assets if the general price:

Amortization expense has no effect on potential cash dividends.

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 Accumulated Depreciation Net Book Value Avionics \ 100 \ 48 \ 52 Fuselage \& Wing \ 200 \ 120 \ 80 Aircraft Engines \ 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%. On July 1^st, 2014, the aircraft's engines were all disposed of for $1.5 million. On that same date, new engines were purchased in the amount of $10 million with a useful life of 20 years and no salvage value. The new engines are to be depreciated on a straight-line basis. What is the carrying value of ABC's aircraft engines on December 31, 2014?

Amortization expense each period is proportionate to usage of the asset each period with the service hours method.

Residual value not subtracted from cost when computing amortization when using the declining balance method until such time as the book nears the residual value.

The residual value of an asset is the expected value of the asset at the end of its entire useful life, while scrap (salvage) value refers to the expected value of the asset at the end of its useful life to the company.