Property, plant and equipment (fixed assets) are valued at historical cost, the cost of the asset plus transportation and setup cost. The costs of fixed assets are capitalized based on the companyâs capitalization policy (threshold for determining fixed assets) and expensed over time referred to as depreciation expense. Do you think fair market value should be used instead?
Property, plant and equipment (fixed assets) are valued at historical cost, the cost of the asset plus transportation and setup cost. The costs of fixed assets are capitalized based on the companyâs capitalization policy (threshold for determining fixed assets) and expensed over time referred to as depreciation expense. Do you think fair market value should be used instead?
Related questions
On June 30, 2015, the Statement of Financial Position of AffanSdn. Bhd. included the following:
RM
Freehold land, atcost 220,000
Building, atcost 660,000
Machinery, atcost 100,000
Accumulated depreciation ofbuilding (66,000)
Accumulated depreciation ofmachinery (19,000)
During the year ended June 30, 2016, the company purchased a newmachinery. Further details are provided below:
Type of asset | Machinery |
Date of purchase | 1 July 2015 |
Purchase price | RM60,000 |
Additional costs incurred: | |
Cost to install the machine | RM8,500 |
Import duty | RM600 |
Transportation costs | RM1,400 |
It is the policy of the company to depreciate its building usingthe straight method of 5% per annum and machinery on diminishingbalance method at 10%. On 30 June 2016, the freehold land wasrevalued to RM450,000.
Required:
Calculate the depreciation expense of building and machinery forthe year ended 2016.
Show how the companyâs property, plant and equipment ispresented in the Statement of Financial Position as at June 30,2016. Use the format below.
Property, plant and equipment | RM |
Freehold land, value | |
Building, at cost | |
Machinery, at cost | |
Accumulated depreciation of building | |
Accumulated depreciation of machinery |
Property and equipment is reported at its:
| A. | historical cost. | |
| B. | market value. | |
| C. | book value. | |
| D. | fair value. | |
| E. | depreciation cost. |
Uganda Corporation estimates the life of its building to be 30 years. It originally cost $300,000 and was given a residual value of $30,000. Depreciation expense per year should be:
| A. | $100,000. | |
| B. | $10,000. | |
| C. | $300,000. | |
| D. | $9,000. | |
| E. | $90,000. |
QUESTION 3
Western Corporation purchased a machine for $20,000 with no residual value and a life of 4 years. What is the book value of the machine at the end of Year 4?
| A. | $5,000 | |
| B. | $16,000 | |
| C. | $4,000 | |
| D. | $0 | |
| E. | $20,000 |
QUESTION 4
The difference between the cost of an asset and its salvage value is its:
| A. | historical cost. | |
| B. | book value. | |
| C. | fair value. | |
| D. | depreciable base. | |
| E. | depreciation expense. |
QUESTION 5
An asset costing $50,000 with accumulated depreciation of $20,000 is sold for $25,000. What is the resulting gain or loss?
| $5,000 gain | ||
| $5,000 loss | ||
| Cannot determine since salvage value is not provided in the question. |
QUESTION 6
Which of the following is an example of an accelerated depreciation method?
| A. | The units-of-production method | |
| B. | The half-year convention method | |
| C. | The fixed assets turnover method | |
| D. | The double-declining balance method | |
| E. | The straight-line method |
QUESTION 7
Mannow Company uses the units-of-production depreciation method. Mannow purchased a machine for $80,000 with no salvage value. Mannow believes the machine will produce 400,000 units. In the first year, 90,000 units are produced. In the second year, 70,000 units are produced. What is the balance in accumulated depreciation at the end of year two?
| A. | $14,000 | |
| B. | $32,000 | |
| C. | $10,000 | |
| D. | $18,000 | |
| E. | $16,000 |
