Flashcards in PPE Deck (91)
What depreciation method is used for group/composite assets?
Straight-line method to groups rather than individual assets.
How do we calculate the rate used in double declining balance?
1) Straight-line rate (number of years divided into 1) i.e., if 5 years 1/5 = 20%. 2) Twice the straight-line rate 20% x 2 = 40%.
When is the inventory method of depreciation used?
When the inventory items are smaller homogeneous groups of assets and individual records for the assets are not maintained.
What depreciation method does not use salvage value?
Double declining balance.
List the considerations that must be given when electing to expense or capitalize an item.
Estimated time benefit; Materiality.
List the limitation of recorded value of self-constructed assets.
Market value at completion.
What is the general rule for capitalizing expenditures?
Capitalize all expenditures necessary to bring the plant asset to its intended condition and location.
List the components of capitalized costs of self-constructed assets.
Labor; Material; Overhead; Interest Cost.
Define "get ready costs".
All costs incurred to get the asset on the company's premises and ready for use.
List the general rules on costs to capitalize.
Cash equivalent price; Get ready costs.
What causes transfers between classifications for investments which do not give the investor significant influence?
Changes in investor intent or Changes in investor ability to hold-to-maturity.
How do we account for the transfer of an investment from held-for-trading to held-to-maturity or available-for-sale?
1. Credit Trading at recorded fair value; 2. Debit held-to-maturity or available-for-sale at current fair value; 3. Recognize unrealized holding gain/ loss in net income.
How do we account for the transfer of an investment from held-to-maturity to available-for-sale?
1. Credit held-to-maturity at unamortized cost; 2. Debit available-for-sale at fair value; 3. Unrealized (holding) gain or loss to Other Comprehensive Income.
How do we account for the transfer of an investment from available-for-sale to held-to-maturity?
1. Credit available-for-sale at recorded fair value; 2. Debit held-to-maturity at current fair value; 3. Unrealized holding gain/loss stays in Accumulate Other Comprehensive Income in Shareholders' Equity; 4. Unrealized holding gain/loss at date of transfer amortized over remaining life of debt.
What is the effect on an Investment in Subsidiary account when the parent accounts for its investment using the cost method?
Under normal circumstances, the carrying amount of the investment does not change under the cost method.
What major transactions or events would cause the carrying amount of an investment to change when the cost method is used to account for the investment?
The carrying amount of the investment would change when: 1. The subsidiary pays a liquidating dividend (i.e., dividend greater than earnings since the investment was made); 2. The investor buys additional shares of the subsidiary or sells some of the share it already owns.
How do we account for the transfer of an investment from held-to-maturity to held-for-trading?
1. Credit held-to-maturity at unamortized cost; 2. Debit available-for-sale at fair value; 3. Unrealized (holding) gain or loss to Other Comprehensive Income. 3. Recognize unrealized holding gain/ loss in net income.
Under what conditions does International Financial Reporting Standards (IFRS) No. 9 permit an investor to elect to measure a debt investment at fair value that would otherwise be measured at amortized cost?
An investor can elect to measure a debt investment that would otherwise be measured at amortized cost at fair value when the use of fair value would eliminate or significantly reduce a measurement or recognition inconsistency that results from an accounting mismatch. An accounting mismatch occurs when assets or liabilities, or recognizing gains or losses on them, are measured on different bases.
Under what conditions does International Financial Reporting Standards (IFRS) No. 9 permit an investor to elect to report gains or losses from changes in fair value of equity investments in other comprehensive income, rather than through profit and loss (net income)?
If the investor does not hold an equity investment for trading purposes, the investor may elect to report changes in fair value through other comprehensive income, rather than through profit and loss (net income). The election must be made when the investment is first recognized and subsequently cannot be changed.
What conditions must be met under International Financial Reporting Standards (IFRS) No. 9 for an investment in debt to be classified as debt instruments measured at amortized cost?
Two conditions must be met: 1. Business model test - where the entity intends to hold the investment to collect the contractual cash flows, not to sell the instrument prior to its contractual maturity to realize changes in fair value; 2. Cash flow characteristic test - where the contractual terms of the investment give rise to cash flows on specific dates that are solely payments of principal and interest.
What are the categories of investments under International Financial Reporting Standards (IFRS) No. 9?
Under IFRS No. 9 two categories of investments (and other financial assets) include: 1. Debt investments measured at amortized cost; 2. All other investments, including debt instruments not at amortized cost and all equity investments.
Under IFRS, how is the impairment loss presented if the asset is carried at fair value?
Any impairment loss would be classified out of other comprehensive income and into earnings.
What is the value in use?
The present value of the future cash flows generated from the asset or cash generating unit.
How are assets grouped for impairment testing under International Financial Reporting Standards (IFRS)?
At the "cash generating unit" level.
What is a cash generating unit?
The smallest identifiable group off assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
What is the recoverable amount under IFRS?
The higher of the fair value less the cost to sell or the assets value in use.
Are reversals of impairment allowed under International Financial Reporting Standards (IFRS)?
Yes, they are allowed.
List the general test for impairment.
Book value > Recoverable Cost.
List the impairment tests for assets in use.
1. Sum net future cash flows from asset (recoverable cost); 2. If sum > book value, no impairment; 3. If sum