Chapter 11: Property, Plant, and Equipment and Intangible Assets: Utilization and Disposition
Residual Value
(Salvage value) the amount the company expects to receive for the asset at the end of its service life less any anticipated disposal costs
Double Declining Balance Method
200% of the straight line rate is multiplied by book value
Goodwill Impairment Loss
A ____________ _____________ ___________ is indicated when the fair value of the reporting unit is less than its book value
Estimate
A change in _________ should be reflected in the financial statements of the current period and future periods.
Accumulated Depreciation
A contra asset account that represents the cumulative amount of the asset's cost that has been depreciated in all prior years including the current year
Time Based Methods
Allocates the cost base according to the passage of time.
Activity Based Method
Allocation of an asset's cost base using a measure of the asset's input or output
Straight Line Method
Allocation of an equal amount to each year. For depreciation of plant & equipment or amortization of intangible assets, an equal amount of the allocation base is allocated to each year of the asset's service life. The allocation base is divided by number of years in the asset's service life to determine the depreciable base.
Depletion
Allocation of the cost of natural resources
Held For Use
An asset __________ ______ ________ should be written down if there has been a significant impairment of value
Book Value
An asset's cost minus the accumulated depreciation
Held for Sale
Assets to be disposed of by sale are classified as _______ ____ _____ and measured at the lower of the assets book value or the assets fair value less the cost to sell
Material Errors
Below is a summary of the treatment of ________ ____________in a previous year: - Previous years' financial statements are retrospectively restated - Account balances are corrected - If retained earnings requires correction, the correction is reported as a prior period adjustment - A note describing the nature of the error and the impact of the correction on income
NO
Can the cost of an intangible asset with an indefinite useful life be amortized?
Prospectively
Changes in depreciation, amortization, or depletion methods are accounted for ____________, like changes in estimates are.
Prospectively
Changes in estimates are accounted for ____________
Group Depreciation Method
Collection of assets defined as depreciable assets that share similar service lives and other attributes. Example is if you have a fleet of similar trucks for your delivery route
Units of Production Method
Computes a depreciation rate per measure of activity and then multiplies this rate by actual activity to determine periodic depreciation
A&B
Corr reports its financial statements in accordance with IFRS and uses the revaluation option for its equipment. At the end of year 3, the revaluation surplus has a credit balance of $10,000. At the end of the year 3, Corr has equipment with a carrying value of $200,000, which is revalued at $175,000. The entry to record the adjustment to fair value would include which of the following? a. debit to revaluation surplus—OCI $10,000 b. debit to revaluation expense $15,000 c. credit to revaluation surplus $25,000 d. debit to revaluation expense $25,000
Amortization
Cost allocation for intangible assets
Depreciation
Cost allocation for plant and equipment
Accumulated Depreciation
Declining balance depreciation methods multiply _________ ________ by an annual rate that is a multiple of the straight-line rate.
Cost
Depletion base is ________ less any anticipated residual value
Manufacturing
Depreciation can be included in inventory in a(n) ______________________ environment
Held For Sale
For ___________ ____________ ___________, if fair value minus cost to sell is less than book value, an impairment loss is recognized for the difference
Inventory
For intangible assets used in the manufacturing of a product, amortization expense for the period is included in the cost of ____________
Cannot
Goodwill ____________ be revalued
Other Comprehensive Income
If a company choses to report property plant and equipment via the revaluation method, .and the fair value is HIGHER than book value, the difference is reported at ________ ______________ _________
Balance Sheet
If a company choses to report property plant and equipment via the revaluation method, .and the fair value is HIGHER than book value, the difference is reported on the ____________ _____________
Depreciation Expense
If a company choses to report property plant and equipment via the revaluation method, .and the fair value is LOWER than book value, the difference is reported as _______________ ___________
Income Statement
If a company choses to report property plant and equipment via the revaluation method, .and the fair value is LOWER than book value, the difference is reported on the ____________ _____________
Impairment Loss
If fair value is less than book value, an _____________ ___________ is recognized for the difference
Patent
In June of 20X2, Scarlett Company discovered that it incorrectly expensed $12,000 of legal fees to successfully defend a patent infringement suit in January 20X1. At the time it paid the legal fees, the patent had a six-year remaining life of the patent. The entry to correct this error will include a debit to _______ for $10,000
Finite, Indefinite
Intangible assets have _________ or _________ useful lives
Biological Assets
Living animals and plants, including the trees in a timber tract or in a fruit orchard, are referred to as:
Straight Line
Most companies use the ___________ __________ method to calculate amortization expense
Impairment
PPE and finite-life intangible assets are tested for __________ only when events or changes in circumstances indicate book value may not be recoverable
Composite Depreciation Method
Physically dissimilar assets are aggregated to gain the convenience of group depreciation. Example is if you have several manufacturing plants, grouping all of one plant's assets together
Half Year Disposition
Record one half of a full year's depreciation in the year of acquisition and another half year's depreciation in the year of disposal
Sum of the Years Digits Method
Systematic acceleration of depreciation by multiplying the depreciable base by a fraction that declines each year. Seldom used in practice.
IFRS
The _______ 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
IFRS
The _______ allows company to report property, plant, and equipment at cost less accumulated depreciation (book value) OR at its fair value (revaluation)
IFRS
The _______ lists only the following three depreciation methods: straight-line, units-of-production, and diminishing balance
Amortized
The cost of an intangible asset with a finite life is _____________
Allocation Base
The cost of the asset expected to be consumed during its service life. This is the difference between the asset's capitalized cost at the date placed in service and the asset's estimated residual value
Service Life
The estimated use that the company expects to receive from the asset. Can be expressed in units of time or units of activity. Can be different than physical life (technology, for example)
Book
The gain or loss on disposal of an asset is calculated as consideration received less the _______ value of the asset sold
Cannot
The goodwill impairment loss ________ exceed the book value of the goodwill
Natural Resource
The journal entry to record the allocation of the cost of a natural resource will include a credit to the ____________ _____________
Allocation Method
The pattern in which the allocation base is expected to be consumed
Depreciation Expense
The portion of the asset's cost that is allocated to an expense in the current year
Fair Value
The present value of future cash flows is often used as a measure of _______ ____________
Zero
The residual value of an intangible asset is usually:
D
The useful life of an intangible asset may be limited by what type of provisions? A. Legal B. Regulatory C. Contractual D. All of the Above
Retirement
This is when an asset is abandoned but will not be sold. At this time, 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, as no monetary consideration will be received
Indefinite
Trademarks or tradenames are often considered to have __________ useful lives
True
True or false: An accelerated method of depreciation might be appropriate if benefits are derived equally over the life of the asset, but repair and maintenance expenses are expected to be higher in later years.
Goodwill
Under IFRS, all intangible assets can be revalued except:
Net Income
Under IFRS, when valuing biological assets, changes in fair value are included in the calculation of _____ _________
GAAP
Under _______, biological assets are valued at cost less accumulated depletion/depreciation
IFRS
Under _______, biological assets are valued at their fair value less estimated costs to sell
Book
When disposing of an asset, a gain or loss is recognized for the difference between the consideration received and the asset's _________ value
G
Which items are considered changes in estimates that would be treated on a prospective basis in the current period and future periods? A. Increasing the residual value of an asset B. Incorrectly capitalizing an item when it should be expensed C. Change in useful life of an asset D. Forgetting to record depreciation expense in the previous period E. Both A & B F. Both B & C G. Both A & C H. A, B, & C
Amortization
Which type of allocation typically follows a time based method?
Depletion
Which type of allocation typically follows an activity based method?
Goodwill
_____ has an indefinite life and is subject to impairment testing
Activity Based
_________ __________ depreciation methods are too costly to use and difficult to apply in practice
Goodwill
___________ is an intangible asset whose cost is not expensed through periodic amortization
Depletion
____________ of the cost of natural resources usually is determined using the units-of-production method