Financial Accounting ifrs 4e Chapter 9 solution PDF

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Copyright © 2019 WILEY Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual (For Instructor Use Only) 9-CHAPTER 9Plant Assets, Natural Resources,and Intangible AssetsASSIGNMENT CLASSIFICATION TABLELearning Objectives QuestionsBrief Exercises Do It! Exercises Problems Explain the accounting for...

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CHAPTER 9 Plant Assets, Natural Resources, and Intangible Assets ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives

Questions

Brief Exercises

Do It!

Exercises

Problems

1.

Explain the accounting for plant asset expenditures.

1, 2, 3, 4

1, 2, 3

1

1, 2, 3

1

2.

Apply depreciation methods to plant assets.

5, 6, 7, 8, 9, 10, 11, 24, 25, 26, 27

4, 5, 6, 7, 8, 9, 10

2a, 2b

4, 5, 6, 7, 8, 9, 10 11

2, 3, 4, 5

3.

Explain how to account for the disposal of plant assets.

12, 13

11, 12

3

12, 13, 14

5, 6

4.

Describe how to account for natural resources and intangible assets.

14, 15, 16, 17, 18, 19, 20, 21, 22

13, 14, 15

4

15, 16

7, 8

5.

Discuss how plant assets, natural resources, and intangible assets are reported and analyzed.

23

16, 17

5

17

5, 7, 9

Explain how to account for the exchange of plant assets.

28, 29

18, 19

*6.

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

18, 19

(For Instructor Use Only)

9-1

ASSIGNMENT CHARACTERISTICS TABLE Problem Number

9-2

Description

Difficulty Level

Time Allotted (min.)

1

Determine acquisition costs of land and building.

Simple

20–30

2

Compute depreciation under different methods.

Simple

30–40

3

Compute depreciation under different methods.

Moderate

30–40

4

Calculate revisions to depreciation expense.

Moderate

20–30

5

Journalize a series of equipment transactions related to purchase, sale, retirement, and depreciation.

Moderate

40–50

6

Record disposals.

Simple

30–40

7

Prepare entries to record transactions related to acquisition and amortization of intangibles; prepare the intangible assets section.

Moderate

30–40

8

Prepare entries to correct errors made in recording and amortizing intangible assets.

Moderate

30–40

9

Calculate and comment on asset turnover.

Moderate

5–10

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

(For Instructor Use Only)

WEYGANDT FINANCIAL ACCOUNTING, IFRS, 4e CHAPTER 9 PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS Number

LO

BT

Difficulty

Time (min.)

BE1

1

AP

Simple

2–4

BE2

1

AP

Simple

1–2

BE3

1

AP

Simple

4–6

BE4

2

AP

Simple

2–4

BE5

2

E

Moderate

4–6

BE6

2

AP

Simple

4–6

BE7

2

AP

Simple

2–4

BE8

2

AP

Simple

4–6

BE9

2

AP

Simple

2–4

BE10

2

AP

Simple

4–6

BE11

3

AP

Simple

4–6

BE12

3

AP

Simple

2–4

BE13

4

AP

Simple

4–6

BE14

4

AP

Simple

2–4

BE15

4

AP

Simple

4–6

BE16

5

AP

Simple

4–6

BE17

5

AP

Simple

2–4

*BE18

6

AP

Simple

4–6

*BE19

6

AP

Simple

4–6

DI1

1

C

Simple

4–6

DI2a

2

AP

Simple

2–4

DI2b

2

AP

Simple

6–8

DI3

3

K

Simple

2–4

DI4

4

K

Simple

2–4

DI5

5

AP

Simple

2–4

EX1

1

C

Simple

6–8

EX2

1

AP

Simple

4–6

EX3

1

AP

Simple

4–6

EX4

2

C

Simple

4–6

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

(For Instructor Use Only)

9-3

PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE ASSETS (Continued) Number

LO

BT

Difficulty

Time (min.)

EX5

2

AP

Simple

6–8

EX6

2

AP

Simple

8–10

EX7

2

AP

Simple

10–12

EX8 EX9 EX10 EX11 EX12 EX13 EX14 EX15 EX16 EX17 *EX18 *EX19 P1 P2 P3 P4 P5 P6 P7 P8 P9 CT1 CT2 CT3 CT4 CT5 CT6

2 2 2 2 3 3 4 4 4 5 6 6 1 2 2 2 2, 3, 5 3 4, 5 4 5 2, 4 5 2 2 2 2

AP AN AP AP AP AP AP AP AP AP AP AP C AP AN AP AP AP AP AP AN AN AN, E C AP, E C E

Simple Moderate Moderate Moderate Moderate Moderate Simple Simple Simple Simple Moderate Moderate Simple Simple Moderate Moderate Moderate Simple Moderate Moderate Moderate Simple Simple Simple Moderate Simple Simple

4–6 8–10 6–8 6–8 8–10 10–12 6–8 4–6 6–8 4–6 8–10 8–10 20–30 30–40 30–40 20–30 40–50 30–40 30–40 30–40 5–10 15–20 10–15 10–15 20–25 5–10 10–15

9-4

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

Learning Objective

Knowledge Comprehension

1. Explain the accounting for plant assets expenditures.

Q9-1 Q9-2 Q9-3 Q9-4 DI9-1

2. Apply the depreciation methods Q9-5 to plant assets.

Q9-6 Q9-7 Q9-8 Q9-9 Q9-10 Q9-11 Q9-24 Q9-25 Q9-26 Q9-27

3. Explain how to account for the disposal of plant assets.

Q9-12 DI9-3

4. Describe how to account for Q9-14 natural resources and intangible Q9-20 DI9-4 assets.

(For Instructor Use Only)

Expand Your Critical Thinking

E9-4

Application BE9-1 BE9-2 BE9-3

E9-5 E9-6 E9-7 E9-8 E9-10 E9-11 P9-2 P9-4

Q9-13

BE9-11 BE9-12 E9-12 E9-13

P9-5 P9-6

Q9-15 Q9-16 Q9-17 Q9-18 Q9-19 Q9-21 Q9-22

BE9-13 BE9-14 BE9-15 E9-14 E9-15 E9-16 Q9-23 BE9-16 BE9-17

Q9-28

Q9-29

BE9-18 BE9-19

Analysis

Synthesis

Evaluation

E9-2 E9-3

BE9-5 BE9-6 BE9-7 BE9-8 BE9-9 BE9-10 DI9-2a DI9-2b

5. Discuss how plant assets, natural resources, and intangible assets are reported and analyzed. *6. Explain how to account for the exchange of plant assets.

E9-1 P9-1

P9-5

E9-9 P9-3

BE9-4

P9-7 P9-8

DI9-5 P9-7 E9-17 P9-5

P9-9

E9-18 E9-19

Real-World Focus Decision-Making Across Financial Reporting Communication the Organization Comp. Analysis

Comp. Analysis Decision-Making Across the Organization Ethics Case

BLOOMS TAXONOMY TABLE

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Ca Ca b B Ta, La Obc ad Ed-of-Chapter Exercises and Problems

9-5

ANSWERS TO QUESTIONS 1.

For plant assets, the historical cost principle means that cost consists of all expenditures necessary to acquire the asset and make it ready for its intended use.

2.

Examples of land improvements include driveways, parking lots, fences, and underground sprinklers.

3.

(a) When only the land is to be used, all demolition and removal costs of the building less any proceeds from salvaged materials are necessary expenditures to make the land ready for its intended use. (b) When both the land and building are to be used, necessary costs of the building include remodeling expenditures and the cost of replacing or repairing the roofs, floors, wiring, and plumbing.

4.

Revenue expenditures are ordinary repairs made to maintain the operating efficiency and productive life of the asset. Capital expenditures are additions and improvements made to increase operating efficiency, productive capacity, or useful life of the asset. Revenue expenditures are recognized as expenses when incurred; capital expenditures are generally debited to the plant asset affected.

5.

You should explain to the president that depreciation is a process of allocating the cost of a plant asset to expense over its service (useful) life in a rational and systematic manner. Recognition of depreciation is not intended to result in the accumulation of cash for replacement of the asset.

6.

(a) Residual value, also called salvage value, is the expected value of the asset at the end of its useful life. (b) Residual value is used in determining depreciation in each of the methods except the decliningbalance method.

7.

(a) Useful life is expressed in years under the straight-line method and in units of activity under the units-of-activity method. (b) The pattern of periodic depreciation expense over useful life is constant under the straight-line method and variable under the units-of-activity method.

8.

The effects of the three methods on annual depreciation expense are: Straight-lineconstant amount; units of activityvarying amount; declining-balancedecreasing amounts.

9.

Component depreciation is a method of allocating the cost of a plant asset into separate parts based on the estimated useful lives of each component. IFRS requires an entity to use component depreciation whenever significant parts of a plant asset have significantly different useful lives.

10.

A revision of depreciation is made in current and future years but not retroactively. The rationale is that continual restatement of prior periods would adversely affect confidence in the financial statements.

11. Revaluation is an accounting procedure that adjusts plant assets to fair value at the reporting date. Revaluation must be applied annually to assets that are experiencing rapid price changes.

9-6

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

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Questions Chapter 9 (Continued) 12.

In a sale of plant assets, the book value of the asset is compared to the proceeds received from the sale. If the proceeds of the sale exceed the book value of the plant asset, a gain on disposal occurs. If the proceeds of the sale are less than the book value of the plant asset sold, a loss on disposal occurs.

13.

The plant asset and its accumulated depreciation should continue to be reported on the statement of financial position without further depreciation adjustment until the asset is retired. Reporting the asset and related accumulated depreciation on the statement of financial position informs the reader of the financial statements that the asset is still in use. However, once an asset is fully depreciated, even if it is still being used, no additional depreciation should be taken. In no situation can the accumulated depreciation on the plant asset exceed its cost.

14.

Extractable natural resources consist of underground deposits of oil, gas, and minerals. These long-lived productive assets have two distinguishing characteristics: they are physically extracted in operations, and they are replaceable only by an act of nature.

15.

Depletion is the allocation of the cost of natural resources to expense in a rational and systematic manner over the resources useful life. It is computed by multiplying the depletion cost per unit by the number of units extracted.

16.

The terms depreciation, depletion, and amortization are all concerned with allocating the cost of an asset to expense over the periods benefited. Depreciation refers to allocating the cost of a plant asset to expense, depletion to recognizing the cost of a natural resource as expense, and amortization to allocating the cost of an intangible asset to expense.

17.

The intern is not correct. The cost of an intangible asset should be amortized over the shorter of that assets legal life or its useful life (the period of time when operations are benefited by use of the asset). In addition, some intangibles have indefinite lives and therefore are not amortized at all.

18.

The favorable attributes which could result in goodwill include exceptional management, desirable location, good customer relations, skilled employees, high-quality products, and harmonious relations with labor unions.

19.

Goodwill is the value of many favorable attributes that are intertwined in the business enterprise. Goodwill can be identified only with the business as a whole and, unlike other assets, cannot be sold separately. Goodwill can only be sold if the entire business is sold. And, if goodwill appears on the statement of financial position, it means the company has purchased another company for more than the fair value of its net assets.

20.

Goodwill is recorded only when there is a transaction that involves the purchase of an entire business. Goodwill is the excess of cost over the fair value of the net assets (assets less liabilities) acquired. The recognition of goodwill without an exchange transaction would lead to subjective valuations which would reduce the reliability of financial statements.

21.

Research and development costs present several accounting problems. It is sometimes difficult to assign the costs to specific projects, and there are uncertainties in identifying the extent and timing of future benefits. As a result, IFRS requires that research costs be recorded as an expense when incurred. Development costs incurred prior to technological feasibility are also expensed but development costs incurred after technological feasibility are capitalized.

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

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9-7

Questions Chapter 9 (Continued) 22.

Both types of development expenditures relate to the creation of new products but one is expensed and the other is capitalized. Development costs incurred before a new product achieves technological feasibility are recorded as development expenses and appear as part of operating expenses on the income statement. Development costs incurred after the product achieves technological feasibility are recorded as assets, and reported in the statement of financial position.

23.

McDonalds asset turnover is computed as follows: Net sales Average total assets

= $20.5 billion = .71 times $28.9 billion

24.

Since Alpha uses the straight-line depreciation method, its depreciation expense will be lower in the early years of an assets useful life as compared to using an accelerated method. Zitos depreciation expense in the early years of an assets useful life will be higher as compared to the straight-line method. Alphas net income will be higher than Zitos in the first few years of the assets useful life. And, the reverse will be true late in an assets useful life.

25.

Yes, the tax regulations often allow a company to use a different depreciation method on the tax return than is used in preparing financial statements. Wanzo ASA uses an accelerated depreciation method for tax purposes to minimize its income taxes and thereby the cash outflow for taxes.

26.

By selecting a longer estimated useful life, Lam Ltd. is spreading the plant assets cost over a longer period of time. The depreciation expense reported in each period is lower and net income is higher. Shueys choice of a shorter estimated useful life will result in higher depreciation expense reported in each period and lower net income.

27.

Expensing these costs will make current period income lower but future period income higher because there will be no additional depreciation expense in future periods. If the costs are ordinary repairs, they should be expensed.

*28. When assets are exchanged, the gain or loss on disposal is computed as the difference between the book value and the fair value of the asset given up at the time of exchange. *29. Yes, Morris should recognize a gain equal to the difference between the fair value of the old machine and its book value. If the fair value of the old machine is less than its book value, Morris should recognize a loss equal to the difference between the two amounts.

9-8

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Weygandt, Financial Accounting, IFRS 4/e, Solutions Manual

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SOLUTIONS TO BRIEF EXERCISES BRIEF EXERCISE 9.1 All of the expenditures should be included in the cost of the land. Therefore, the cost of the land is 75,900, or (64,000 + 3,000 + 2,500 + 2,000 + 4,400). BRIEF EXERCISE 9.2 The cost of the truck is £32,200 (cash price £30,000 + sales tax £1,800 + painting and lettering £400). The expenditures for insurance and motor vehicle license should not be added to the cost of the truck. BRIEF EXERCISE 9.3 1.

2.

Maintenance and Repairs Expense .......................... Cash ....................................................................

45

Equipment.................................................................. Cash ....................................................................

580

45

580

BRIEF EXERCISE 9.4 Depreciable cost of 33,000, or (42,000  9,000). With a five-year useful life, annual depreciation is 6,600, or (33,000 ÷ 5). Under the straight-line method, depreciation is the same each year. Thus, depreciation expense is 6,600 for both the first and second years. BRIEF EXERCISE 9.5 It is likely that management requested this accounting treatment to ...