9.5 Statement presentation of long lived assets

Question 1

Property, plant, and equipment
-def
-examples

Answer 1

Assets that have physical substance that are used in the operations of a business and are not intended for sale to customers.

Land, land improvements, buildings, equipment, furniture, natural resources, and right-of-use assets and leasehold improvements arising from some leases

Question 2

intangible assets
-def
-ex

Answer 2

Assets without physical substance that represent rights, privileges, and/or competitive advantages. They are used in the operations of a business and are not intended for sale to customers.

Patents, copyrights, trademarks, trade names, franchises, licences, development costs

Question 3

goodwill
def
ex

Answer 3

The value of favourable attributes related to a company as a whole (cannot be separately identified) when one business acquires another and pays more than the fair value of the net identifiable assets.\

goodwill

Question 4

sofp- ppe, intangible asset, goodwill

Answer 4

Either on the statement of financial position or in the notes to the financial statements, companies must show the cost of each of the major classes of assets, such as land, buildings, and equipment, as well as the accumulated depreciation or amortization affecting the related assets. In addition, the company must specify which depreciation and amortization methods it uses and the useful lives or rate of depreciation/amortization pertaining to each type of asset. Most companies do this in the significant accounting policies note(see Decision Tool). Companies must also disclose their policy for testing for impairments as well as any significant changes in methods or rates that result in a revision of depreciation or amortization.

Under IFRS, companies disclose if they are using the cost or the revaluation model for each class of assets. Under both IFRS and ASPE, notes to the financial statements must include a reconciliation of the carrying amount at the beginning and end of the period for each class of non-current assets. For IFRS, this means companies must show all the following: (1) additions, (2) disposals, (3) depreciation or amortization methods and useful lives or rates, (4) impairment losses, and (5) reversals of impairment losses.ASPE For companies reporting under ASPE, disclosure of all these details is not necessary.

Question 5

soi- ppe, intangible asset, goodwill

Answer 5

Companies present depreciation expense, amortization expense, gains and losses on disposal, and impairment losses in the operating expenses section of the statement of income. Why this section rather than the other income and expenses section of the statement of income for gains and losses? Recall that depreciation and amortization expense are estimates. If a company overestimates depreciation or amortization, this underestimates the carrying amount of the asset; then, when selling it, the company is more likely to have a gain on disposal because of this understatement. On the other hand, if the company underestimates the depreciation or amortization, this overstates the carrying amount of the asset and the company is more likely to have a loss on disposal because of the overstatement. Because of this, gains and losses are a function of the depreciation or amortization recorded in the past and, as such, companies record them in the same section of the statement of income as depreciation and amortization. Gains would essentially reduce operating expenses, while losses would increase operating expenses.

Many companies combine depreciation and amortization into a single amount on their statements of income. However, Cargojet does not have intangible assets that are amortized, so it reports only depreciation expense, which was $116 million in 2021. It also reported a $300,000 gain from the disposal of property and equipment.

Question 6

socf- ppe, intangible asset, goodwill

Answer 6

Companies re

port the cash flows from the purchase and sale of non-current assets in the investing activities section of the statement of cash flows. Illustration 9.34shows the investing activities section of Cargojet’s statement of cash flows

Cargojet is in a growth cycle. The company’s purchases of long-lived assets are much greater than the proceeds from the sale of such assets.Although not shown in Illustration 9.34, when determining its operating cash flows, Cargojet would ensure that depreciation is not considered in this calculation because depreciation, like amortization, is not “paid” like most expenses. Depreciation and amortization are an allocation of asset costs to expenses and do not affect cash flows. Furthermore, Cargojet will not include any gains or losses on disposals or retirements of non-current assets, or impairment losses on the statement of cash flows. These gains or losses do not affect cash flows because they are just the difference between the cash flow arising on this transaction (the proceeds received on disposal reported above in the investing activities section) and the carrying amount of the disposed or retired asset.