Exam 10: Depreciation, Amortization, and Impairment

When using the inventory appraisal system of amortization, the decline in the total appraisal value during the period is recorded directly in the asset account as amortization expense.

Canada Revenue Agency (CRA) mandates that the declining balance method be used to calculate CCA for all asset classes.

At the start of Year 1, DEF Inc. has a UCC balance of $100. During Year 1, the company acquired assets in the amount of $50 and disposed of assets with an undepreciated value of $25 for $20. The pool qualifies as Class 8 assets (20% CCA). The remaining balance in the asset pool at the end of Year 1 as a result of the above information would be:

What is the minimum book value to be disclosed in the balance sheet for a plant asset, which is expected to be sold for reasonable amount at the end of its useful life?

Any impairment losses to a CGU's group assets are generally prorated among the CGU's long-lived assets including Goodwill.

Only long lived assets with finite lives should be tested for impairment. Long-lived assets with unlimited lives are not subject to impairment tests.

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. -A gain or loss is recognized on the retirement of an asset under the following amortization system or method:

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 \ 180 10 \ 120 2010 \ 180 20 \ 125 2011 \ 180 30 \ 130 Required: For each year, provide the revaluation entries assuming that ABC applies: a) The elimination method and, b) The proportional method.

Choose the incorrect statement concerning the half-year convention as it applies to amortization.

The methods of amortization based upon output assume that obsolescence will not significantly affect the usefulness of the asset.

On January 3, 2014, Garcia Co. purchased machinery. The machinery has an estimated useful life of eight years and an estimated residual value of $25,000. The amortization applicable to this machinery was $54,000 for 2015, computed by the straight-line method. Calculate what the acquisition cost of the machinery was.

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 2009 revaluation journal entry would include

An asset cost $93,000 (no residual value) and is being depreciated on the SYD basis over 30 years. What is the amount of amortization expense for years: (1) __________________ (10) _______________ (30) ________________?

Accumulated amortization, as used in accounting, represents:

Cummings corporation purchased a machine that cost $82,653, on terms of 2/10, net/30. The invoice price was paid in full 20 days after the purchase date. The machine has an estimated useful life of 3 years and a residual value of $9,000. What is the amortization expense in the second year, assuming SYD amortization?

The Harvey Co. purchased a tooling machine on January 3, 2011 for $420,000. The machine was being amortized on the straight-line method over an estimated useful life of 10 years, with no residual value. At the beginning of 2018, the company paid $105,000 to overhaul the machine. As a result of this improvement, the company estimated that the useful life of the machine would be extended an additional five years (15 years total). Calculate the amount of the amortization expense to be recorded for the machine in 2018. Harvey Co. has a calendar year-end and adjusting entries are only made at year-end.

For each succeeding period, the units-of-production method of amortization usually recognizes an amount of amortization expense that is:

On January 1, 2001, JN acquired three identical trucks at a cost of $24,000 each. They have an estimated useful life of four years and a residual value of 10 percent of cost. On January 2, 2002, one truck was damaged in an accident. It was a complete loss except for salvage of $1,400 cash. The company uses group amortization for the trucks. JN has a December 31 year-end and only accounts for amortization at year-end. (a) Give the entry to record the effects of the accident January 2, 2002. (b) Give the adjusting journal entries to record amortization expense at the end of 2001 and 2002.

Which method of amortization results in periodic amortization expense that may fluctuate from one period to the next, but not necessarily in a steadily upward or downward direction?

On January 1, 2011, Alabama Company purchased equipment at a cost of $40,000. The equipment was estimated to have a residual value of $4,000 and it is being amortized over eight years under the straight-line method. Calculate the amount that should be the charge for amortization of this equipment for the year ended December 31, 2018.