PP&E

Question 1

What is the proper accounting for the restoration costs of a mine?

Answer 1

Add them to the depletion base

Question 2

A company sold a warehouse and purchased a new one. How the excess of proceeds over Book value be reported as?

Answer 2

A part of continuing operations

Question 3

A building is being actively marketed for sale, and the company expects to complete the sale in four months, how it will be valued?

Answer 3

The building being actively marketed for sale will be valued at the lower of the cost (book value) or NRV (fair value - cost of sale).

Question 4

If the question says, in current year company spent 200,000 for development of mine, how should we treat expense

Answer 4

Add to the depletion base.

Question 5

How to calculate double declining depreciation

Answer 5

Step one: Total cost/useful life
Step 2: multiple the amount in first step with two
Third step multiply the cost with this % until to reach at the salvage value.

Question 6

If we use Sum of digits method instead of DDB method of depreciation, how would it affect gain or loss on sale of fixed asset

Answer 6

If we use SOD method rather than DDB method the The depreciation is less in the first years, therefore the Book Value is higher. If you sell an asset with higher book value you would get a lower gain and higher loss as compare to an asset whose BV is lot lower, where there are chances to get increase gain due to lower book value and decreased loss.

Question 7

You have asset that has a cost of 100 (assume it is not given) and salvage value of 20%. and life of 10 years and sold on the Dec 31 Y5 at 50% of its original cost and reported loss, which method of depreciation you think it would be

Answer 7

First of all sold at Dec 31, first of all depreciate the asset for that year. you have 5 years of depreciation. Remember straight-line method will have the highest BOOK VALUE of the asset and more chances to have a loss.

Question 8

You have a car with BV of 3,000 and installed a new engine for 1,000 and did some repairs for 500. What would be the BV of the car now

Answer 8

4,000. The engine has extended the life of the asset while repairs are routine.

Question 9

Ravont leased land for 21 years and built a building by Jan 1 Year 2. The cost to build the building is 800,000 and when the lease is over the estimated value of the building will be 400,000. What is your depreciation based?

Answer 9

800,000 and it will be depreciated over the life of property or term of the lease, whichever is shorter.

Question 10

When permanent Loss occurs and an asset is written down, how do you credit the loss?

Answer 10

The loss is credited to the accumulated depreciation

Permanent Impairment Loss
Accumulated Depreciation