Exam 10: Depreciation, Amortization, and Impairment

Yvon Co., which has a calendar year accounting period, purchased a new machine for $30,000 on April 1, 2013. At that time Yvon expected to use the machine for nine years and then sell it for $3,000. The machine was sold for $16,500 on September 30, 2018. Assume the use of straight-line amortization, no amortization in the year of acquisition, and a full year of amortization in the year of retirement. Calculate the gain to be recognized at the time of sale.

ABC adheres to IFRS and applies the revaluation model to account for its Patents. Prior to 2009, there was no balance in the company's Revaluation Surplus (OCI) accounts relating to its long-lived assets. The following year-end data refers to the company's patents(the table values are in 000's): Carrying Value Fair Value 2009 \ 100 \ 120 2010 \ 90 \ 60 2011 \ 80 \ 100 -The 2011 revaluation journal entry would include

Under what conditions will the service hours and productive output methods of amortization result in the same amortization expense for a particular year?

ABC adheres to IFRS and applies the revaluation model to account for its Machinery. Prior to 2009, there was no balance in the company's Revaluation Surplus (OCI) accounts relating to its long-lived assets. The following year-end data pertains to the company's machinery: Cost Accumulated Depreciation Fair Value 2009 \ 100 0 \ 120 2010 \ 100 10 \ 60 2011 \ 100 20 \ 100 Required: For each year, provide the revaluation entries assuming that ABC applies: a) The elimination method and, b) The proportional method.

The accounts of The Tool Bin Inc. at the end of 2014, showed the tools account as follows: Beginning balance \ 12,000 New tools purchased during 2001 3,000 At the end of 2014, the tools were inventoried at "cost in present condition" as $12,500. The amount of the adjusting entry for amortization expense at the end of 2014, assuming the inventory/appraisal system, should be $_________________________.

Wolf Co. purchased machinery that was installed and ready for use on January 3, 2014, at a total cost of $92,000. Residual value was estimated at $12,000. The machinery will be amortized over five years using the double-declining balance method. Calculate for the year 2015, the amount Wolf should record amortization expense on this machinery. Wolf Co. has a December 31 year-end and adjusting entries are only made at year-end.

If income tax effects are ignored, accelerated amortization methods tend to offset the effect of steadily increasing repair and maintenance costs on the income statement.

On January 1, 2013, SK purchased a machine that cost $20,000. It has an estimated four-year life, and a 10 percent residual value. The machine is expected to be used for a total of 1,500 productive hours over the next 4 years. During 2013, it was used 430 hours. Using (a) straight-line and (b) productive time, SK should report 2013 amortization expense as follows: Straight-line Productive Hours 1 \ 4.500 \ 5.160 2 \ 4.500 \ 5.735 3 \ 5.000 \ 5.160 4 \ 5.000 \ 5.735

Gains or losses upon the retirement of individual asset units are not recognized when the assets concerned are:

When the revaluation model is applied, amortization expense must be taken annually for depreciable assets.

The declining balance method of amortization is appropriate for software or other assets where the value of the asset is derived mainly in the early years of the assets' life.

Which of the following is not an objection to the use of the straight-line method of amortization?

In which amortization method is the first year's amortization computed by applying the amortization rate to the total cost of the asset (without reducing it for residual value)?

For financial statement purposes (for a non-manufacturing company), amortization is a variable (as opposed to a fixed) expense (in total) if the amortization method used is:

If income tax effects are ignored, accelerated amortization methods provide funds for the earlier replacement of fixed assets.

SBD decided to use group amortization for its new fleet of 10 panel delivery trucks. The trucks were purchased on January 1, 2013 at a cost of $12,000 each. The estimated useful life was 5 years and the estimated residual value was 10 percent of cost. Assume straight-line group amortization is used. SBD has a December 31 year-end and only accounts for amortization at year-end. (a) At the end of 2013, amortization expense should be recorded in the amount of $____________________. During 2014, three transactions occurred affecting the trucks: (1) One truck was wrecked and the only recovery was $1,000 received from the salvage yard. (2) Ordinary repair expenditures amounted to $700. (3) A new truck was purchased at a cost of $12,200 on December 26. (b) At the end of 2014, amortization expense should be recorded in the amount of $_____________________.

At the end of the annual reporting period, December 31, 2014, LTX had the accounting situation given below under consideration for adjusting entries. Give the appropriate adjusting entry. Assume straight-line amortization. If an adjusting entry is not needed, explain why. Situation: LTX had a small (and old) plant that has been idle for two years. LTX has been unable to sell it for the asking price of $75,000. It originally cost $325,000 and the accumulated depreciation is $265,000. A recent independent appraisal of its current value (the land plus salvage value of the plant) was $35,000. Impairment loss on idle plant 25,000 Accumulated depreciation 25,000

ABC Inc. has substantial Machinery & Equipment. The company applies the Revaluation Surplus model for these assets. The company had no Revaluation Surplus OCI - Machinery on its books for these assets: Book Values (after taking depreciation but before revaluation entry) and Fair Values for the following 2 years are shown below: (the table values are in 000's): BV FV December 31, Year 2 60 90 December 31, Year 3 120 80 BV FV December 31, Year 2 60 90 December 31, Year 3 120 80 -ABC's December 31^st, Year 3 revaluation entry would include:

Revaluation accounting is an option, not a requirement under IFRS.

Individual assets may never be tested for impairment on their own.