Ch11 - Intermediate Accounting vol 1. Chapter 11 Solutions Manual PDF

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Intermediate Accounting vol 1. Chapter 11 Solutions Manual...

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Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

CHAPTER 11

DEPRECIATION, IMPAIRMENT, AND DISPOSITION Learning Objectives 1. Understand the importance of depreciation, impairment, and disposition from a business perspective. 2. Explain the concept of depreciation and identify the factors to consider when determining depreciation charges. 3. Identify how depreciation methods are selected; calculate and recognize depreciation using the straight-line, decreasing charge, and activity methods. 4. Explain the accounting issues for depletion of mineral resources. 5. Explain and apply the accounting procedures for partial periods and a change in depreciation rate. 6. Explain the issues and apply the accounting standards for capital asset impairment under both IFRS and ASPE. 7. Account for derecognition of property, plant, and equipment and explain and apply the accounting standards for long-lived assets that are held for sale. 8. Describe the types of disclosures required for property, plant, and equipment and analysis of investment in capital assets. 9. Identify differences in accounting between IFRS and ASPE, and what changes are expected in the near future. 10. Calculate capital cost allowance in routine and non-routine situations.

_____________________________________________________________________________________ Solutions Manual 11.1 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

Summary of Questions by Learning Objectives and Bloom’s Taxonomy Ite m

LO

BT Ite m

LO

BT Ite LO BT m

Brief Exercises C 6. 3 AP 11. 5 AP AP 7. 3 AP 12. 6 AP AP 8. 3,10 AP 13. 6 C AP 9. 4 AP 14. 6 AP AP 10. 4 AP 15. 6 AP Exercises 1. 1,2,3 C 8. 3 AP 15. 4 AP 2. 2,3 AP 9. 3 AP 16. 5 AP 3. 3 AP 10. 3 AP 17. 5 AP 4. 3,5,10 AP 11. 3,5 AP 18. 5 AP 5. 2,3 AP 12. 3,5 AP 19. 6 AP 6. 3 AP 13. 4 AP 20. 6 AP 7. 3 AP 14. 4 AP 21. 6 AP Problems 1. 3,5,10 AP 5. 3,10 AP 9. 2,3 AP 1. 2. 3. 4. 5.

1,8 2 2 3 3

2. 3 AP 3. 3,5,10 AP 4. 3,5,7 AP IC1. 7,8

AN

1.

8

AP

6.

1,8

AN

Ite LO BT m 16. 17. 18. 19. 20.

6 6 7 7 7

Ite LO BT m

AP 21. 8 AN C 22. 10 AP AP AP AP

22. 3 AP 29. 8 AN 23. 6,7,8 AP 30. 3,10 AP 24. 2,3,7 AP 31. 10 AP 25. 3,5,7 AP 32. 10 AP 26. 7 AP 27. 7 AP 28. 7 AP 13.

3

AP 17. 3,5, AP 6 6. 3,5,7 AP 10. 3 AP 14. 3,6,8 AP 18. 10 AP 7. 3,5,7 AP 11. 3,4 AP 15. 7 AP 19. 8,10 AP 8. 2,3 AP 12. 3,4,7 AP 16. 3 AP Cases IC 1,6 AN 2. Research and Analysis 2. 8 AP 3. 3,8 AP 4. 3,4,6 AN 5. 1,8, AN 9 7. 6,8 AP 8. 2,8 AN

_____________________________________________________________________________________ Solutions Manual 11.2 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

Legend: The following abbreviations will appear throughout the solutions manual file. LO BT

Difficulty:

Time: AACSB

CPA CM

Learning objective Bloom's Taxonomy K Knowledge C Comprehension AP Application AN Analysis S Synthesis E Evaluation Level of difficulty S Simple M Moderate C Complex Estimated time to complete in minutes Association to Advance Collegiate Schools of Business Communication Communication Ethics Ethics Analytic Analytic Technology Tech. Diversity Diversity Reflective Thinking Reflec. Thinking CPA Canada Competency Map Ethics Professional and Ethical Behaviour PS and DM Problem-Solving and Decision-Making Comm. Communication Self-Mgt. Self-Management Team & Lead Teamwork and Leadership Reporting Financial Reporting Stat. & Gov. Strategy and Governance Mgt. Accounting Management Accounting Audit Audit and Assurance Finance Finance Tax Taxation

ASSIGNMENT CLASSIFICATION TABLE Topics 1. Concept of

Brief Exercises

Exercises

1

1

Problems

_____________________________________________________________________________________ Solutions Manual 11.3 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

depreciation. 2.

Factors in determining depreciation charges.

3. Meaning and choice of methods and. calculation of depreciation

2, 3

1, 2, 5, 24

1, 2, 5, 6, 8, 13, 16

4, 5, 6, 7

1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 24, 25, 30

1, 2, 4, 5, 6, 7, 8, 9, 10, 16, 17, 19

4.

Depletion.

8, 9

13, 14, 15

11, 12

5.

Errors; Changes in estimates.

9

4, 11, 12, 16, 17, 3, 6, 7, 13, 17 18, 25

6.

Impairment.

10, 11, 12, 13, 14, 15

19, 20, 21, 22, 23

14, 17

7.

Assets held for sale and dispostions.

16, 17, 18

23, 24, 25, 26, 27, 28

4, 7, 15, 17

8.

Presentation disclosures and analysis

1,19

23, 29

8, 14, 15, 17, 19

8, 20

4, 30, 31, 32

9. Differences between ASPE and IFRS. *10. Tax depreciation (CCA).*

1, 3, 5, 18, 19

*This material is covered in an Appendix to the chapter.

_____________________________________________________________________________________ Solutions Manual 11.4 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE Item

Description

E11.1 E11.2 E11.3

Choice of depreciation method. Depreciation calculations—SL, DDB. Depreciation calculations—SL, DDB— partial periods. Depreciation calculations—five methods, partial periods. Depreciation calculations—SL, DDB— partial periods. Depreciation computations—SL, SYD, DDB. Depreciation computations – 5 methods Depreciation calculations—SL, DDB. Depreciation—conceptual understanding. Depreciation for fractional periods. Error analysis and depreciation—SL and DDB. Error analysis and depreciation—SL and DDB. Depletion calculations—timber. Depletion calculations—oil. Depletion calculations—minerals. Depreciation—change in estimate. Depreciation calculation—addition, change in estimate. Depreciation—replacement, change in estimate. Impairment—cost recovery model. Impairment—cash-generating units. Impairment—rational entity model and cash-generating units, cost recovery model and asset groups. Impairment—cost recovery and rational entity models. Impairment—cost recovery and rational entity models. Depreciation calculation-replacement, trade-in. Depreciation calculations—revaluation model

E11.4 E11.5 E11.6 E11.7 E11.8 E11.9 E11.10 E11.11 E11.12 E11.13 E11.14 E11.15 E11.16 E11.17 E11.18 E11.19 E11.20 E11.21 E11.22 E11.23 E11.24 E11.25

Level of Difficulty

Time (minutes)

Moderate Simple

20-25 15-20

Simple

25-35

Moderate

20-30

Moderate Simple

25-35 15-20

Simple Moderate Moderate Moderate Simple

15-20 20-30 20-25 25-35 10-15

Moderate

20-25

Complex Simple Simple Simple Simple

40-45 10-15 15-20 20-25 20-25

Moderate

20-25

Moderate Moderate Moderate

30-35 20-25 20-25

Moderate

30-35

Moderate

15-20

Moderate

20-25

Complex

40-45

_____________________________________________________________________________________ Solutions Manual 11.5 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

ASSIGNMENT CHARACTERISTICS TABLE (CONTINUED) Item

Description

E11.26 E11.27 E11.28 E11.29 *E11.30

Entries for disposition of assets. Entries for disposition of assets. Disposition of assets. Ratio analysis. Depreciation calculations—four methods, partial periods. CCA calculations. Book versus tax (CCA) depreciation. Calculation of cost and depreciation for partial periods—SL, DDB, and CCA. Calculation of cost and depreciation for partial periods—SL, SYD and DDB. Depreciation for partial periods—SL, Activity, DDB, and CCA. Depreciation—partial periods, disoposal of machinery. Depreciation – SL, DDB, UOP and CCA Depreciation—Activity, SL, and DDB. Depreciation and error analysis. Selecting an depreciation method – impact on decisions Depreciatio of components Calculation of depreciation—SL, DDB, SYD and UOP. Depletion and depreciation – mining. Depletion, timber. Comprehensive fixed-asset problem. Impairment and asset held for sale. Dispositions, including condemnation, demolition, and trade-in. Comprehensive depreciation calculations. Comprehensive depreciation calculations, trade-in, revised estimates. Capital cost allowance, terminal losses, recapture and capital gains. Government assistance and tax values.

*E11.31 *E11.32 P11.1 P11.2 P11.3 P11.4 P11.5 P11.6 P11.7 P11.8 P11.9 P11.10 P11.11 P11.12 P11.13 P11.14 P11.15 P11.16 P11.17 *P11.18 *P11.19

Level of Difficulty

Time (minutes)

Simple Moderate Simple Moderate

10-15 20-25 10-15 15-25

Simple Moderate Moderate Moderate

10-15 15-20 15-20 25-35

Simple

15-20

Moderate

45-50

Moderate

30-45

Moderate Moderate Complex Complex

20-25 25-35 45-60 60-70

Moderate Moderate

20-25 25-35

Moderate Moderate Moderate Moderate Moderate

25-35 25-30 25-35 45-50 35-40

Complex Complex

45-60 45-60

Moderate

25-35

Moderate

25-35

* Includes material covered in an Appendix to the chapter. _____________________________________________________________________________________ Solutions Manual 11.6 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 11.1 Recording and reporting accumulated depreciation and impairment losses provides users with relevant and faithfully representative information. Accumulated depreciation is the total cost of existing property, plant, and equipment that has been allocated and matched to the revenues that it helped generate. This is relevant information; for example, a high amount of accumulated depreciation relative to total cost would help users understand that the existing property, plant, and equipment has been available for use in generating revenues for a long period of time, or has been used extensively in generating revenues. Recording accumulated depreciation results in faithfully representative, neutral financial statements that are free from bias. Accumulated impairment losses is the cumulative amount of impairment losses that have been recorded for existing property, plant, and equipment. An impairment loss is recorded when the carrying amount of an asset exceeds its recoverable amount. Recording an impairment loss provides users with faithfully representative and neutral information about the expected benefit to be realized from an asset, relative to its carrying amount. LO 1, 8 BT: C Difficulty: M Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

_____________________________________________________________________________________ Solutions Manual 11.7 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

BRIEF EXERCISE 11.2 (a) Under IFRS, asset componentization is more strictly applied. The aircraft engines would be recorded and depreciated separately from the aircraft’s body. October 1, 2020 Aircraft – Engines ............................................................ 20,000,000 Aircraft – Body ................................................................. 80,000,000 Cash..........................................................................100,000,000 December 31, 2020 Depreciation Expense ..................................................... 2,325,000 Accumulated Depreciation – Aircraft - Engines1................................................ 450,000 Accumulated Depreciation – Aircraft – Body2.................................................... 1,875,000 1

($20,000,000 – $2,000,000) / 10 X 3/12 = $450,000

2

($80,000,000 – $5,000,000) / 10 x 3/12 = $1,875,000

(b) Under ASPE, the practice has been not to recognize asset components to the same extent as under IFRS. For example, under ASPE, Ocean Airways may record the purchase of the aircraft without asset componentization, in which case the total $100 million cost of the aircraft would be recorded in one Aircraft asset account on October 1, 2020, and depreciation expense would be calculated based on useful life of the entire aircraft as opposed to separately for the body and the engines. LO 2 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

_____________________________________________________________________________________ Solutions Manual 11.8 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

BRIEF EXERCISE 11.3 Original Cost = $30,000 + $200 + $100 + $500 + $400 = $31,200 (a)

$31,200 – $6,000 10

X 6/12 = $1,260

(b)

$31,200 – $0 12

X 6/12 = $1,300

Under ASPE, depreciation expense is the larger of the original cost less salvage value over the asset’s total expected life ($1,300), and the original cost less residual value over the asset’s useful life to the entity ($1,260 calculated in part (a) above). LO 2 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 11.4 (a) (b)

$100,000 – $25,000 8 $100,000 – $0 10

X 10/12= $7,813 X 10/12 = $8,333

Under ASPE, depreciation expense is the larger of the original cost less salvage value over the asset’s total expected life ($8,333), and the original cost less residual value over the asset’s useful life to the entity ($7,813 calculated in part (a) above). LO 3 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

_____________________________________________________________________________________ Solutions Manual 11.9 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

BRIEF EXERCISE 11.5 (a)

$60,000 – $6,000 8

= $6,750

(b)

$60,000 – $6,000 8

X 4/12 = $2,250

LO 3 BT: AP Difficulty: S Time: 5 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 11.6 1

Rate on declining balance = (100% ÷ 8) X 2 = 25%

(a) $60,000 X 25%1 January 1 to December 31, 2020

= $15,000

(b) 2020 Depreciation expense = 3/12 X $15,000 = $3,750 2021 depreciation expense is either: ($60,000 X 25% X 9/12) + ($45,000 X 25% X 3/12)

= $14,063

Or: Carrying amount, Dec. 31/20 ($60,000 - $3,750) = $56,250 2021 depreciation: $56,250 X 25%

= $14,063

(c) If the benefits of the asset are expected to flow to the entity evenly over time, and if the decline in usefulness of the asset is expected to be constant from period to period, there is greater justification for using the straight-line method. If the greatest benefits of the asset are expected to be yielded in the early years, the declining-balance method better reflects the pattern of use. LO 3 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

_____________________________________________________________________________________ Solutions Manual 11.10 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

BRIEF EXERCISE 11.7 (a) ($60,000 – $6,000) X 8/361 = $12,000 1

The sum-of-the-years’-digits method is a decreasing charge method. The denominator of the fraction equals the sum of the digits of the asset’s useful life (in this example, 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 = 36). The numerator decreases year by year, and in the first year of the asset’s use, it is equal to the total useful life of the asset. (b) [($60,000 – $6,000) X 8/36] X 9/12 = $9,000 LO 3 BT: AP Difficulty: M Time: 10 min. AACSB: None CPA: cpa-t001 CM: Reporting

BRIEF EXERCISE 11.8 (a)

($48,000 - $3,000) / 275,000 = $0.1636 per km

2020:

52,000 X $0.1636 = $8,507

2021:

65,000 X $0.1636 = $10,634

(b)

2020: 2021:

$48,000 X 30% X ½ ($48,000 - $7,200) X 30%

= $7,200 = $12,240

Note: CCA works like the double-declining balance method after the first year but no residual value is used in the calculation of CCA at the end of the useful life. LO 3, 10 BT: AP Difficulty: M Time: 15 min. AACSB: None CPA: cpa-t001 CM: Reporting

_____________________________________________________________________________________ Solutions Manual 11.11 Chapter 11 Copyright © 2019 John Wiley & Sons Canada, Ltd. Unauthorized copying, distribution, or transmission of this page is strictly prohibited.

Kieso, Weygandt, Warfield, Wiecek, McConomy

Intermediate Accounting, Twelfth Canadian Edition

BRIEF EXERCISE 11.9 Inventory............................................................................ 97,650 Accumulated Depletion........................................... Asset Retirement Obligation1.................................

84,150 13,500

$500,000 + $125,000 + $75,000 – $157,500 = $108.50 per tonne 5,000 900 X $108.50 = $97,650 1

Asset Retirement Obligation: $75,000 = $15.00 per tonne 5,000

900 X $15.00 = $13,500 Note: It is likely that the site ...