Exam 10: Depreciation, Amortization, and Impairment

A major objective of capital cost allowance for tax amortization is to help companies achieve a faster write-off of their capital assets.

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 \ 170 \ 120 2010 \ 160 \ 125 2011 \ 150 \ 130 -The 2010 revaluation journal entry would include

On April 13, 2014, Halifax Co. purchased machinery for $150,000. Residual value was estimated to be $6,000. The machinery will be amortized over 10 years using the double-declining balance method. If amortization is computed on the basis of the nearest full month, calculate the amount Halifax should record amortization expense for 2015 on this machinery. Halifax Co. has a December 31 year-end and adjusting entries are only made at year-end.

All other factors remaining constant, use of the straight-line amortization method will result in a decreasing rate-of-return on assets in the later years of the life of an asset.

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 2010 revaluation journal entry would include

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

ASPE specifies a minimum amount of depreciation to be taken each year while IFRS does not.

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 2 revaluation entry would include:

Which of the following is not a negative element under the "capital assets, tangible" classification?

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. Determine the gain or loss on disposal of the old aircraft engines.

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 undiscounted operating cash flows of $40 throughout its remaining useful life and then sold for $4. Assuming that ABC adheres to ASPE, is the asset impaired?

Amortization expense is a source of cash because it is a non-cash expense.

An asset cost $13,000; estimated residual value, $1,000, and estimated life: In years 5 In running time (hours) 3.000 Actual in Year 1 - 700 hours In productive output (units) 10,000 Actual in year 1 - 2.000 units Compute the following: Method Amortization Expense-Year 1 Carrying Value End of Year 1 A Straight-line \_ B Service hours \_ C Productive output \_ D SYD \_ E Double declining balance \_

Lone Co. purchased a machine on July 1, 2018, for $600,000. The machine has an estimated useful life of five years and a residual value of $80,000. The machine is being amortized from the date of acquisition by the 150% declining balance method. Calculate for the year ended December 31, 2018, the amount that Lone should record for amortization expense on this machine.

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 2009 revaluation journal entry would include

GAAP requires that, when recording amortization expense, the credit must always be made to a contra asset account, rather than directly to the asset account.

An asset's recoverable amount is the higher of its value-in-use or fair value less costs to sell.

Amortization accounting is not a matter of valuation.

Mossman Co. purchased machinery on January 2, 2012, for $360,000. The straight-line method is used and useful life is estimated to be 10 years, with a $40,000 residual value. At the beginning of 2018 Mossman spent $96,000 to overhaul the machinery. After the overhaul, Mossman estimated that the useful life would be extended four years (14 years total), and the residual value would be $30,000. Calculate the amortization expense for 2018. Mossman Co. has a December 31 year-end and adjusting entries are only made at year-end.

Amortization: