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Depreciation, Depletion, Revaluation

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Acctg 4. Tutorials

PAS 36 states that in measuring value in use, estimates of future cash flows shall include except: a. Estimated future cash flows that are expected to arise from improving or enhancing the assets performance b. Projections of cash inflows from the continuing use of the assets c. Projections of cash outflows that are necessarily incurred to generate the cash inflows from the continuing use of the assets (including cash outflows to prepare the asset for use) and can be directly attributed, or allocated on a reasonable and consistent basis to the assets d. Net cash flows, if any, to be received (or paid) for the disposal of the asset of at the end of its useful life

2.

What is the treatment for the accumulated depreciation on an item of property, plant and equipment on the date of revaluation? Statement I. Restated proportionately with the change in the gross carrying amount of the asset, so that the carrying amount after the revaluation equals the revalued amount. Statement II. Eliminated against the gross carrying amount of the asset and the net amount restated to the revalued amount of the asset. Statement I only Statement II only Either Statement I or II Neither Statement I nor II

a. b. c. d. 3.

All of the items listed below except one are examples of impairment indicators. Which is the exception? a. An increase in interest rates that affects the return required on the companys assets b. A minor decline in the assets market value c. Physical damage affecting the asset d. The companys reported net assets exceeding its market capitalization

4. These are assets other than goodwill that contribute to the future cash flows of both the cash generating unit under review and other cash generating units. Problems 1. On January 1, 2008, My Company purchased equipment for P 1, 600, 000. On this date, the equipments estimated economic useful life is 10 years and estimated residual value is P 115, 000. It is the companys policy to depreciate this type of equipment using a sum of the years digit. On January 1, 2013, My Company decided to adapt a new method to depreciate all equipment. If the straight line method is adapted, what amount of depreciation should the company recognize in the statement of comprehensive income for the year ended December 31, 2013? 2. On January 1, 2009, Wade Company signed a 12 year lease for building. Wade has an option to renew the lease for an additional 8 year period on or before January 1, 2012. During 2010, Wade made substantial improvements to the building. The cost of the improvements was P 3, 600, 000 with an estimated useful life of 15 years. At December 31, 2010, Wade intended to exercise the renewal option. Wade has taken a full years depreciation on this improvement. What is the carrying amount of this leasehold improvement on December 31, 2010? 3. On January 1, 2006, Bryant Company purchased an asset for P 1,000,000, with an estimated economic useful life of 10 years. Straight-line method of depreciation is to be used. On January 1, 2009, it was properly computed that the recoverable amount of the asset is P 740,000.

Depreciation, Depletion, Revaluation

Acctg 4. Tutorials

Using the revaluation model to measure long-lived assets, what is the amount of revaluation surplus on January 1, 2009? 4. Beasely Company purchased a machine for P 650, 000 on January 1, 2007. At the date of the purchase, Beasely incurred the following additional costs: Freight Cost P 5, 000 Installation cost 20, 000 Testing cost prior to regular operations 4, 000 The estimated salvage value of the machine was P 46,500 and Beasely estimated that the machine would have a useful life of 10 years, with depreciation being computed using the sum of the years digit. In January 2009, the company spent P 28,000 for the inspection and overhaul to the machine. This cost was necessary to meet its original assessed standard of performance. How much is the carrying value of the machine on December 31, 2009? 5. On July 1, 2009,Neal Mining Company purchased the rights to a mine. The total purchase price was P7,920,000 of which P 240,000 was allocated to land. Estimated reserves wer 1,600,000 tons. Neal expects to extract and sell 25,000 tons per month. Neal purchased new equipment on July 1, 2009. The equipment cost P 3, 960, 000 and has a useful life of 8 years. However, after all the resources are removed, the equipment will be of no use and will be sold for P 120,000. If sales and production conformed to expectations, what amount of depreciation should the company recognize in 2009?

Answers: A,C,B,.81,000,.3,360,000,.40,000,.368,500,.360,000

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