Financial Accounting and Reporting Fixed Assets.ppt

1、Financial Accounting and Reporting,9: Fixed Assets,1,Fixed Assets,A: Acquisition Costs (P229) B: Capitalization of Interest (P229-231) C: Non-Monetary Exchange (P231-235) D: Purchase of Group of Fixed Assets (P235-235) E: Capital Acc DEP, $3,000) is traded for land.,Answer:,Land is recorded FMV of m

2、achine (asset exchanged) Recognized loss since FMV of machine NBV of machine,Dr. Land $5,000 Dr. ACC DEP 3,000Dr. Loss 2,000 Cr. Machine $10,000,FMV (machine) Less: NBV Loss,$5,000 (7,000),$2,000,To record land (received) on B/S,To calculate loss,Asset exchanged,Asset received,- FMV 1+ No boot,29,C,

3、Nonmonetary Exchange,5. Situation 2:,a) Conditions,Record asset received FMV of asset exchanged + Boot given G/L determination,FMV of asset exchanged (given up) is determinable The transaction has commercial substance and is not to facilitate sale Boot given,b) Accounting treatment,- FMV 1 + Boot gi

4、ven,- Boot given does not affect G/L calculation,FMV exchanged Less: NBV exchanged G/L,30,C,Nonmonetary Exchange,5. Situation 2 Example:,A machine with FMV of $5,000 (cost, $10,000; Acc DEP, $3,000) and $500 cash are traded for land.,Answer:,Dr. Land $5,500 Dr. ACC DEP 3,000Dr. Loss 2,000 Cr. Machin

5、e $10,000 Cr. Cash 500,FMV (machine) Less: NBV Loss,$5,000 (7,000),$2,000,To record land (received) on B/S,To calculate loss,Asset exchanged,Asset received,FMV (machine) Add: boot given Land,$5,000 500,$5,500,To calculate Land cost,Boot given,Record asset received FMV of asset exchanged + Boot given

6、 Recognize loss since FMV exchanged NBV exchanged,- FMV 1 + Boot given,31,C,Nonmonetary Exchange,6. Situation 3,a) Conditions,b) Accounting treatment,- FMV 1 + Boot received,FMV of asset exchanged (given up) is determinable The transaction has commercial substance and is not to facilitate sale Boot

7、received,Record asset received FMV of asset exchanged - Boot given G/L determination,- Boot received does not affect G/L calculation,FMV exchanged Less: NBV exchanged G/L,32,C,Nonmonetary Exchange,6. Situation 3 Example:,A machine with FMV of $5,000 (cost, $10,000; Acc DEP, $3,000) is traded for lan

8、d and $500 cash.,Answer:,Dr. Land $4,500 Dr. ACC DEP 3,000Dr. Loss 2,000 Dr. Cash 500 Cr. Machine $10,000,FMV (machine) Less: NBV Loss,$5,000 (7,000),$2,000,To record land (received) on B/S,To calculate loss,Asset exchanged,Asset received,FMV (machine) Less: boot received Land,$5,000 (500),$4,500,To

9、 calculate Land cost,Boot received,Record asset received FMV of asset exchanged - Boot given Recognize Loss since FMV exchanged NBV exchanged,- FMV 1 + Boot received,33,C,Nonmonetary Exchange,7. Situation 4:,a) Conditions,FMV exchanged is not determinable; but FMV received is determinable The transa

10、ction has commercial substance and is not to facilitate sale No boot involved,Record asset received FMV of asset received G/L determination,b) Accounting treatment,- FMV 2 + No boot,FMV received Less: NBV exchanged G/L,34,C,Nonmonetary Exchange,7. Situation 4 Example:,A machine (cost, $10,000; Acc D

11、EP, $3,000) is traded for land with a FMV of $6,000,Answer:,Since FMV of machine is not determinable, use FMV of land instead Recognized loss since FMV of land NBV of machine Record Land (received) FMV of Land,Asset exchanged,Asset received,Dr. Land $6,000 Dr. ACC DEP 3,000Dr. Loss 1,000 Cr. Machine

12、 $10,000,FMV (land) Less: NBV (machine) Loss,$6,000 (7,000),$1,000,To record land (received) on B/S,To calculate loss,- FMV 2 + No boot,35,C,Nonmonetary Exchange,8. Situation 5:,a) Conditions,Record asset received FMV of asset received G/L calculation is determined by the difference,FMV exchanged is

13、 not determinable but FMV received determinable The transaction has commercial substance and is not to facilitate sale Boot given,b) Accounting treatment,- FMV 2 + Boot given,FMV received Less: NBV exchangedLess: Boot given G/L,36,C,Nonmonetary Exchange,8. Situation 5 Example:,A machine (cost, $10,0

14、00; Acc DEP, $3,000) and $500 cash are traded for land with FMV of $6,000.,Answer:,Dr. Land $6,000 Dr. ACC DEP 3,000Dr. Loss 1,500 Cr. Machine $10,000 Cr. Cash 500,FMV (land) Less: NBV Less: Boot Loss,$6,000 (7,000) (500),$1,500,To record land (received) on B/S,To calculate loss,Asset exchanged,Asse

15、t received,Boot given,Record asset received FMV of asset received Recognize loss since FMV received (NBV exchanged + Boot given),- FMV 2 + Boot given,37,C,Nonmonetary Exchange,9. Situation 6:,a) Conditions,Record asset received FMV of asset received G/L calculation is determined by the difference,FM

16、V exchanged is not determinable but FMV received determinable The transaction has commercial substance and not to facilitate sale Boot received,b) Accounting treatment,- FMV 2 + Boot received,FMV received Less: NBV exchangedAdd: Boot received G/L,38,C,Nonmonetary Exchange,9. Situation 6 Example:,A m

17、achine (cost, $10,000; Acc DEP, $3,000) is traded for land with FMV of $6,000 and $500 cash.,Answer:,Dr. Land $6,000 Dr. ACC DEP 3,000Dr. Loss 500 Dr. Cash 500 Cr. Machine $10,000,FMV (land) Less: NBV Add: Boot received Loss,$6,000 (7,000) 500,$500,To record land (received) on B/S,To calculate loss,

18、Asset exchanged,Asset received,Boot received,Record asset received FMV of asset received Recognize Loss since (FMV received + Boot received) NBV exchanged,- FMV 2 + Boot received,39,C,Nonmonetary Exchange,10. Summary,Using FMV exchanged,Using FMV received,No boot involved,Boot given,Boot received,As

19、set received recorded ,G/L recognition,FMV exchanged,FMV exchanged + Boot given,FMV exchanged - Boot received,FMV exchanged Less: NBV exchanged G/L,No boot involved,Boot given,Boot received,Asset received recorded ,G/L recognition,FMV received,FMV received Less: NBV exchanged G/L,FMV received Less:

20、NBV exchanged Less: Boot given G/L,FMV received Less: NBV exchanged Add: Boot received G/L,40,C,Nonmonetary Exchange,11. Situation 7,a) Conditions,Neither FMV is determinable,Record asset received NBV of assets exchanged No G/L recognized if no boot involved G/L is recognized boot involved,b) Accoun

21、ting treatment,- Exception ,41,C,Nonmonetary Exchange,11. Situation 7 Example:,A machine (cost, $10,000; Acc DEP, $3,000) is traded for land. Neither the FMV of the machine or the land is determinable.,Answer:,Dr. Land $7,000 Dr. ACC DEP 3,000 Cr. Machine $10,000,To record land (received) if no boot

22、 involved,Asset exchanged,Asset received,Dr. Land $7,000 Dr. ACC DEP 3,000 Dr. Loss 500 Cr. Machine $10,000 Cr. Cash 500,To record land (received) if $500 given,Dr. Land $7,000 Dr. ACC DEP 3,000 Dr. Cash 500 Cr. Machine $10,000 Cr. Gain 500,To record land (received) if $500 received,- Exception ,42,

23、C,Nonmonetary Exchange,12. Situation 8,a) Conditions,Exchange to facilitate sale to customers, or Exchange lacks of commercial substance No boot involved,Record asset received NBV of assets exchanged No Gain recognized No Gain recognized because the earnings process is not considered complete If a l

24、oss is indicated by the terms of the transaction, the entire loss on the exchange should be recognized.,b) Accounting treatment,- Exception , + No boot,43,C,Nonmonetary Exchange,12. Situation 8 Example:,A machine with a FMV $12,000 (cost, $11,000; Acc DEP, $4,000) is traded for land. The configurati

25、on of cash flow does not significantly differs after exchange,Answer:,Dr. Land $7,000 Dr. ACC DEP 4,000 Cr. Machine $11,000,To record land,To calculate unrecognized gain,FMV of machine Less: NBV of machine Gain,$12,000 (7,000) $5,000,No gain is recognized since the earnings process is not considered

26、 completed. The unrecognized gain will be deferred. It will be recognized as the land is sold in subsequent transaction.,- Exception , + No boot,44,C,Nonmonetary Exchange,13. Situation 9,a) Conditions,Exchange to facilitate sale to customers, or Exchange lacks of commercial substance Boot given,Reco

27、rd asset received NBV of assets exchanged + Boot given No Gain recognized No Gain recognized because the earnings process is not considered complete If a loss is indicated by the terms of the transaction, the entire loss on the exchange should be recognized.,b) Accounting treatment,- Exception , + B

28、oot given,45,C,Nonmonetary Exchange,13. Situation 9 Example 1:,A machine with a FMV $12,000 (cost, $11,000; Acc DEP, $4,000) and $3,000 in cash are traded for land. The configuration of cash flow does not significantly differs after exchange,Answer:,Dr. Land $10,000 Dr. ACC DEP 4,000 Cr. Machine $11

29、,000 Cr. Cash 3,000,To record land,To calculate Land cost,NBV of machine Add: Boot given Land,$7,000 3,000 $10,000,Record asset received NBV of assets exchanged + Boot given,- Exception , + Boot given,46,C,Nonmonetary Exchange,13. Situation 9 Example 2:,A machine with a FMV $5,000 (cost, $11,000; Ac

30、c DEP, $4,000) and $3,000 in cash are traded for land. The configuration of C/F does not significantly differs after exchange,Answer:,Since FMV NBV, loss must be recognized before assets exchange Record asset received NBV of assets exchanged + Boot given,- Exception , + Boot given,47,C,Nonmonetary E

31、xchange,14. Situation 10,a) Conditions,Exchange to facilitate sale to customers, or Exchange lacks of commercial substance Boot received,Cost of asset received,b) Accounting treatment,- Exception , + Boot received,NBV of assets exchanged Less: Boot received Add: Gain recognized Asset received,Partia

32、l of gains could be recognized,Recognized gain =,Boot received,Boot received + FMV of asset received,X Total gain,48,C,Nonmonetary Exchange,14. Situation 10 Example:,A machine with a FMV $12,000 (cost, $11,000; Acc DEP, $4,000) is traded for land and $3,000 in cash. The configuration of cash flow do

33、es not significantly differs after exchange,Answer:,To calculate recognized gain,To calculate total gain,FMV of machine Less: NBV of machine Gain,$12,000 7,000 $5,000,$3,000 $3,000 + 9,000,Boot received,Boot received + FV of asset received,X Total gain,X $5,000 = $1,250,FMV exchanged Less: Boot rece

34、ived FMV received,$12,000 (3,000) $9,000,- Exception , + Boot received,FMV exchanged Less: NBV exchanged G/L,49,C,Nonmonetary Exchange,14. Situation 10 Example:,A machine with a FMV $12,000 (cost, $11,000; Acc DEP, $4,000) is traded for land and $3,000 in cash. The configuration of C/F does not sign

35、ificantly differs after exchange,Answer:,Dr. Land $5,250 Dr. ACC DEP 4,000Dr. Cash 3,000 Cr. Machine $11,000 Cr. Gain 1,250,To calculate cost of land,NBV of machineLess: Boot received Add: Gain recognized Land,$7,000 (3,000) 1,250 $5,250,To record land,50,Question Time,1. A nonmonetary exchange is r

36、ecognized FMV of the assets exchanged unless:,Exchange has commercial substance FMV is not determinable The assets are similar in nature The assets are dissimilar,Answer: b),51,Question Time,2. On 03/31/08, Winn Co. traded in an old machine having a carrying amount of $16,800, and paid a cash differ

37、ence of $6,000 for a new machine having a total cash price of $20,500. The cash flow from the new machine are expected to be significantly different than cash flow from the old machine. On 03/31/08, what amount of loss should Winn recognize on this exchange?,$0 $2,300 $3,700 $6,000,52,Question Time,

38、Answer: b),Cash price of asset received Less: Cash difference FMV of asset exchanged Less: NBV of asset exchanged Loss on nonmonetary exchange,$20,500 (6,000) $14,500 ( 16,800) $2,300,2. On 03/31/08, Winn Co. traded in an old machine having a carrying amount of $16,800, and paid a cash difference of

39、 $6,000 for a new machine having a total cash price of $20,500. The cash flow from the new machine are expected to be significantly different than cash flow from the old machine. On 03/31/08, what amount of loss should Winn recognize on this exchange?,Asset exchanged,Asset received,Boot,- FMV 2 + Bo

40、ot given,53,D. Purchase of Group Assets,54,D,Purchase of Group Assets,Formula,Costs of all assets acquired *,Market Value of A,Market Value of all assets acquired,Example:,Asset 1 Asset 2 Asset 3 Total FMV,$ 60,000 120,000 20,000 200,000,FMV,Relative FMV,60/200 120/200 20/200,Total cash cost,$ 150,0

41、00 150,000 150,000 (known),X,X,X,Allocated cost,$ 45,000 90,000 15,000,Asset 1 Asset 2 Asset 3,$ 45,000 90,000 15,000,Cash,$ 150,000,Dr.,Cr.,55,E. Capital “Group” = similar assets,c) Depreciation is recorded until the NBV is depreciated to the salvage value of the remaining assets,Average composite

42、life = Depreciation base / Annual Dep. Average composite rate = Annual DEP / Total cost,d) No G/L is recognized when one asset in the group is retired in advance,Dr. Cash Dr. ACC DEP Cr. Asset original cost,66,F,Depreciation,7. Composite (group) depreciation Example,Example:,Answer:,Machine,Total co

43、sts,Salvage value,Useful life,A B C,$550,000 200,000 40,000 $790,000,$50,000 20,000 -,20 15 5,Compute avg. composite life and avg. composite rate,Step 1: Average composite rate = Annual DEP EXP / Total cost,Annual DEP EXP,$25,000 12,000 8,000 $45,000,= $45,000 / $790,000 = 5.70%,Step 2: Average comp

44、osite life = DEP base / Annual DEP EXP,= ($500,000 + $180,000 + $40,000) / $45,000 = 16 years,Dep. Base,$500,000 180,000 40,000 720,000,67,F,Depreciation,7. Composite (group) depreciation Example,Example:,Answer:,Machine,Total costs,Salvage value,Useful life,A B C,$550,000 200,000 40,000 $790,000,$5

45、0,000 20,000 -,20 15 5,Assume the company sells machine A in 10 years for $260,000. How to record this disposal?,since the loss on disposal is not recognized, ACC DEP must be reduced (i.e. debited),Dr. Cash $260,000 Dr. ACC DEP 290,000 (plug) Cr. Asset original cost $550,000,Disposals (normal) Dr. C

46、ash Dr. ACC DEP Dr. Loss (maybe) Cr. Asset cost Cr. Gain (maybe),68,F,Depreciation,8. Fractional year depreciation,a) The DEP EXP is taken only for the portion of the year that the asset is used,Example:,$10,000 asset, 4-year life, $2,000 salvage value, bought 07/01/08, what is the DEP EXP for the y

47、ear 2008? (using straight line method),Answer:,Step 1: calculate annual depreciation,Annual depreciation = (Cost Salvage value) / No. of useful life,= ($10,000 - $2,000) / 4,= $2,000,Step 2: calculate DEP EXP for 2008,DEP EXP for 2008 (6 months) = $2,000 X 6/12 = $1,000,69,Question Time,1. A depreci

48、able asset has an estimated 15% of salvage value. At the end of its estimated useful life, the ACC DEP would equal the original cost of the asset under,Yes No Yes Yes No Yes No No,Answer: d),Straight-line,Productive output,70,Question Time,2. In which of the following situations is the units-of-prod

49、uction method of depreciation most appropriate?,An assets service potential declines with use An assets service potential declines with passage of time An asset is subject to rapid obsolescence An asset incurs increasing repairs and maintenance with use,Answer: a),71,Question Time,3. Spiro Co. uses

50、the sum-of-the-years digits method to depreciate equipment purchased in Jan 2006 for $20,000. The est. salvage value of the equipment is $2,000 and the est. useful life is 4 years. What should Spiro report as the assets NBV as of 12/31/08?,$1,800 $2,000 $3,800 $4,500,72,Question Time,Answer: c),($20

51、,000 - $2,000) X,1+2+3+4,4+3+2,Original cost $20,000 Less: ACC DEP (16,200) NBV $3,800,73,3. Spiro Co. uses the sum-of-the-years digits method to depreciate equipment purchased in Jan 2006 for $20,000. The est. salvage value of the equipment is $2,000 and the est. useful life is 4 years. What should

52、 Spiro report as the assets NBV as of 12/31/08?,G. Disposals and Impairment of Value,74,G,Disposals and Impairment of Value,1. Sale of an asset during its useful life,Dr. Cash received Dr. ACC DEP(Dr. Loss on disposal) Cr. Asset cost (Cr. Gain on disposal),2. Write-off fully depreciated asset,Cash r

53、eceived Less: NBV of asset G/L,Dr. ACC DEP Cr. Asset,75,G,Disposals and Impairment of Value,3. Example,A machine which was purchased on 01/01/04 had a cost $6,000 an 8-year life, a $600 salvage value, and was depreciated using straight-line method. If the manufacturer sells the asset on 09/01/09 for

54、 $3,000, calculate the G/L on disposal,Answer:,Step 1: calculate annual DEP EXP,DEP EXP = ($6,000 - $600) / 8 = $675,Step 2: calculate ACC DEP upon disposal,DEP EXP for 2004 to 2008 ($675 X 5) DEP EXP for 2009 ($675 X 8/12) ACC EXP,$3,375 450 $3,825,Step 3: calculate G/L on disposal,Cash received $3

55、,000 NBV ($6,000 - $3,825) (2,175) Gain on disposal $825,Step 4: to record disposal,Dr. Cash received $3,000 Dr. ACC DEP 3,825 Cr. Asset cost $6,000 Cr. Gain on disposal 825,76,G,Disposals and Impairment of Value,4. Asset intended to be disposed rather than for use,If management has adopted a plan for disposal A loss would be recognized if NRV NBV The asset would not subject to depreciation any more The asset would b