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