Chapter 9

1.    Determine cost of PPE. PPE includes all expenditures necessary to acquire these assets and make them ready for use. Costs incurred for future periods (capital expenditures) are included in the cost of the asset, whereas costs benefiting current period (operating expenditures) are expensed. Costs can also include asset retirement costs. If a company leases an asset for more than 1 year, under IFRS, a company will capitalize a right of use asset and record a lease liability. The asset will be depreciated, and interest expense will be recorded relation to lease liability. Under ASPE, an asset may also be capitalized, if not, its operating lease.

2.    Explain and calculate depreciation.

Depreciation is allocating the cost of a long-lived asset to expense over the asset’s service. Depreciation involves: (1) when to revise depreciation rates, (2) checking if long-lived assets are impaired, (3) accounting for natural resources, (4) identifying parts of assets needing different depreciation methods, (5), using CCA for tax, (6) accounting for property, plant, and equipment either by cost or revaluation. When revising straight line depreciation, it’s applied prospectively. Depletion of natural resources is recorded similarly, using units of production. Impairment tests are necessary for both assets and resources.

3.    Account for derecognition of PPE

a.    Update depreciation on assets being disposed of

b.    Calculate carrying amount

c.     Calculate any gains/losses

d.    Record disposal

4.    Identify basic accounting issues for intangible assets and goodwill. Intangible assets, assumed under the cost model, are first recorded at cost, covering all necessary expenses to prepare them for use. If an intangible asset has a finite life, it's amortized over the shorter of its useful or legal life, often on a straight-line basis. Similar to physical assets, finite-life intangible assets are checked for impairment when there are signs of it. Indefinite-life intangible assets aren't amortized and are annually tested for impairment under IFRS, but only when there are indicators under ASPE. Goodwill, the difference between the price paid for a business and the fair value of its identifiable assets minus liabilities, isn't categorized as an intangible asset because it's not separately identifiable. Only purchased, not internally generated, goodwill can be recorded. It has an indefinite life and isn't amortized. Impairment tests for goodwill resemble those for indefinite-life intangibles. Impairment losses for goodwill aren't reversed under both IFRS and ASPE.

5.    Long-lived assets in the financial statements. In the financial statement, assets like land, buildings, equipment, and intangible assets are typically grouped under "Property, Plant, and Equipment" or "Intangible Assets." Goodwill is always listed separately. The cost of major asset categories is disclosed in either the statement or accompanying notes, along with depreciation and amortization methods, useful lives, and accumulated depreciation. Impairment policies and losses are also detailed. Under IFRS, the cost or revaluation model usage is disclosed. Expenses like depreciation, amortization, gains/losses on asset disposal, and impairment losses appear in the operating expenses section of the income statement. Cash flows from asset purchases/sales are reported as investing activities in the cash flow statement.

6.    Describe how to evaluate the use of assets. Two ratios, return on assets and asset turnover, help analyze asset utilization. Return on assets (net income ÷ average total assets) shows how efficiently assets generate net income. It's a combination of asset turnover (sales ÷ average total assets), indicating asset efficiency in revenue production, and profit margin (net income ÷ sales), measuring net income per sale.