ACCTG 326: ch 11 part 2

service life for the depletion of natural resources is the estimated amount of natural resource to be

extracted (for example, tons of minerals or barrels of oil)

the units-of-production method is often used to determine depreciation and amortization on assets used in the

extraction of natural resources

IFRS allows a company to report property, plant, and equipment at book value or, alternatively, at its

fair value (reevaluation)

additions to the group will be recorded by increasing the

group asset account for the cost of the addition. depreciation is determined by multiplying the group rate by the total cost of assets in the group for that period

sometimes companies adopt a simplifying assumption, or convention, for computing partial year's depreciation and use it consistently. a common convention is to record

one-half of a full year's depreciation in the year of acquisition and another half year in the year of disposal (half-year convention)

amortization under IFRS typically occurs over the useful life of the software, based on the

pattern of benefits, with straight-line as the default

the method of amortization should reflect the

pattern of use of the asset in generating benefits. most companies use the straight-line method to calculate amortization expense

goodwill is an intangible asset whose cost is not expensed through

periodic amortization

for intangibles used in the. manufacture of a product, amortization is a

product cost and is included in the cost of inventory (and does not become an expense until the inventory is sold)

if financial statements are again prepared prior to the sale, we reassess the asset's fair value less selling costs. if further decline has occurred we recognize,

another loss

for intangible assets not used in production, such as the franchise cost, periodic amortization is

expensed in the period incurred

group and comoposite depreciation methods aggregate assets to reduce the

recordkeeping costs of determining periodic depreciation

if the reevaluation option is chosen, the way the company reports the difference between fair value and book value depends on

which amount is higher

If fair value is higher than book value, the difference is reported as other comprehensive income (OCI), which then accumulates in a

"revaluation surplus" account in equity

depletion is included in cost of goods sold in the income statement

when the natural resource is sold

IFRS allows a company to value an intangible asset subsequent to initial valuation at

1) cost less accumulated amortization or 2) fair value, if fair value can be determined by reference to an active market

the asset is classified as "held for sale" in the period in which all of the following criteria are met:

1. management commits to a plan to sell the asset 2. the asset is available for immediate sale in its present condition 3. an active plan to locate a buyer and sell the asset has been initiated 4. the completed sale of the asset is probable and typically expected to occur within one year 5. the asset is being offered for sale at a reasonable price relative to its current fair value 6. management's actions indicate the plan is unlikely to change significantly or be withdrawn

capitalized software development costs are amortized based on whichever of the following two methods produce a greater amount:

1. the ratio of current revenues to current and anticipated revenues (percentage of revenue method), or 2. the straight-line method based on the estimated useful life of the asset

if the fair value of an asset held for sale has increased since the previous measurement, we recognize

a gain, but limited to the cumulative amount of any previous losses

if the fair value of an asset held for sale is below book value we recognize

a loss in the current period

the allocation of intangible asset cost is called

amortization

intangible assets with finite useful lives will be amortized, and those with indefinite useful lives will not be

amortized

intangible assets with an indefinite useful life are those with no forseeable limit on the period of time over which the

asset is expected to contribute to cash flows of the entity

The expected residual value of most intangible assets is zero. this may not be the case though, if at the end of its useful life to the reporting entity the asset will

benefit another entity

a gain or loss is recognized for the difference between the consideration received and the asset's

book value

because depreciation records are not kept on an individual asset basis, dispositions are recorded under the assumption that the

book value of the disposed item exactly equals any proceeds received and no gain or loss is recorded

software development costs incurred after the point of technological feasibility and before the product is available for sale are

capitalized

like depletion, amortization expense traditionally is credited to the asset account itself rather than to accumulated amortization. however, the use of a

contra account is acceptable

we allocate the capitalized cost less any estimated residual value of an intangible asset to periods in which the asset is expected to

contribute to the company's revenue-generating activities

depletion base is

cost - any anticipated residual value *residual value could be significant if costs includes land that has a value after the natural resource has been extracted

under US GAAP, a timber tract is valued at

cost less accumulated depletion and a fruit orchard at cost less accumulated depreciation

under GAAP, a company reports PP&E in the balance sheet at

cost less accumulated depreciation (book value)

Group depreciation method

defines the collection as depreciable assets that share similar service lives and other attributes

allocation of the cost of natural resources is called

depletion

an asset that is classified as held for sale is no longer

depreciated or amortized

many companies choose to report intangible assets for their net amount on the face of the balance sheet and then report the amount of amortization in a

disclosure note

group depreciation rate is determined by

dividing the depreciation per year by the total cost

if book value is higher than fair value, the difference is reported as an expense in the income statement. An exception is when a revaluation surplus account relating to the same asset has a balance from a previous increase in fair value, that balance is

eliminated before debiting revaluation expense

the group and composite method simplify the recordkeeping of depreciable assets. this simplification justifies any

errors in income determination

under IFRS, biological assets are valued at their fair value less

estimated costs to sell, with changes in fair value included in the calculation of net income

to record the revaluation of franchise to its fair value

if the fair value is higher than book value, the difference is reported as other comprehensive income (OCI) and then accumulates in a revaluation surplus account in equity if book value is higher than fair value, the difference is expensed after reducing any existing revaluation surplus for the asset

the gain on the sale of an asset before the end of its useful life is usually reported

in the income statement as a separate component of operating income

goodwill is the most common intangible asset with an

indefinite useful life

trademarks or tradenames often are considered to have

indefinite useful lives and the cost of the trademark is not amortized

depletion is a product cost and is included in the cost of the

inventory of the natural resource, just as depreciation on manufacturing equipment is included in inventory cost

legal, regulatory, or contractual provisions often limit the useful life of an intangible asset. on the other hand, useful life might sometimes be

less than the asset's legal or contractual life

most intangible assets have a finite useful life. this means their estimated useful life is

limited in nature

biological assets

living animals and plants, including the trees in a timber tract or in a fruit orchard, are referred to as biological assets

Statutory depletion is the

maximum amount of depletion that may be reported in financial statements prepared according to GAAP for income tax purposes for oil, gas, and most mineral natural resources

the cost of an intangible asset with an indefinite useful life is

not amortized

at the time of retirement, the asset account and the corresponding accumulated depreciation account are

removed from the books and a loss equal to the remaining book value of the asset is recorded because there will be no monetary consideration received

no gain or loss is recorded when a group or composite asset is

retired or sold

if revaluation is chosen, all assets within that class of intangibles must be revalued on a regular basis. goodwill, however, cannot be

revalued. US GAAP prohibits revaluation of any intangible asset

even with partial-year depreciation, the total depreciation over the asset's total life is the

same, whether the asset is purchased a the beginning of a year or during the year

we allocate the cost of an intangible asset over its

service or useful life

the capitalized cost of software developed for internal purposes or as part of cloud computing arrangement is amortized over the

software's expected useful life, generally using straight-line amortization

both composite and group depreciation involve applying a single

straight-line rate based on the average service lives in the group or composite

once the group or composite rate and the average service life are determined, they normally are continued despite

the addition or disposition of individual assets

a gain on the sale of a depreciable asset simply means the asset was sold for more than its book value. in other words,

the asset being received, and recorded (such as cash) is greater than the recorded book value of the asset being sold and written off. the net increase in the book value of total assets is an accounting gain (not an economic gain)

the group will be depreciated over the average service life of

the assets in the group

the group's average service life is calculated by dividing

the depreciable base by the depreciation per year

an asset classified as held for sale is reported at

the lower of its current book value or its fair value less any cost to sell

property, plant, and equipment or an intangible asset to be disposed of by sale is classified as held for sale and measured at

the lower of the assets book value or the assets fair value less cost to sell

if equipment can be moved from the site and used of future projects, the equipment's depreciable base should be allocated over its useful life. if the asset is not movable,

then it should be depreciated over its useful life or the life of the natural resource, whichever is shorter

use ratio of (fair value/book value) to adjust both the equipment and the accumulated depreciation accounts

to fair value

the depreciation rate is applied to the ______ of the group or composite for the period

total cost

depletion of the cost of natural resources usually is determined using the

units-of-production method

composite depreciation method

used when assets are physically dissimilar but are aggregated anyway to gain the convenience of a collective depreciation calculation