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- The cost of a long-lived asset is said to be capitalized. What does this mean?
- How does a capital expenditure differ from a revenue expenditure?
- Assume that you have purchased a computer for business use; illustrate, using examples, capital and revenue expenditures associated with its purchase.
- A company purchases land and buildings for a lump sum. What does this mean? What is the acceptable manner of accounting for a lump sum purchase?
- How does the concept of materiality affect the recording of an expenditure as a capital or revenue item?
- List the three criteria used to determine whether a replacement part for equipment is considered a capital or revenue expenditure.
- When one long-lived asset is exchanged for another, how is the cost of the newly-acquired asset determined?
- What is depreciation?
- Long-lived assets can be considered future benefits to be used over a period of years. The value of these benefits in the first years may not be the same as in later years. Using a car as an example, indicate whether you agree or disagree.
- Assume that you have recently purchased a new sports car. Is a usage or a time-based method preferable for recording depreciation? Why?
- What is the effect on the carrying amount of an asset over its useful life when it is depreciated using the declining balance method? the straight-line method?
- What is the double-declining balance rate of depreciation for an asset that is expected to have a ten-year useful life?
- How is partial-year depreciation expense calculated?.
- What changes in estimates affect calculation of depreciation expense using the straight-line method? Explain the appropriate accounting treatment when there is a revision of an estimate that affects the calculation of depreciation expense.
- Explain the effect on the calculation of depreciation expense for capital expenditures made subsequent to the initial purchase of property, plant, or equipment.
- Explain the process for determining whether the value of a longlived asset has been impaired, and the required adjustments to the accounting records.
- Your friend is concerned that the calculation of depreciation and amortization relies too much on the use of estimates. Your friend believes that accounting should be precise. Do you agree that the use of estimates makes accounting imprecise? Why or why not?
- Why are the significant parts of property, plant, and equipment recorded separately?
- When does the derecognition of PPE not result in a gain or loss on disposal?
- What is a trade-in? Explain whether a trade-in is the same as the sale of an asset.
- Why might a trade-in allowance, particularly in the case of a car, be unrealistic? Why would a dealer give more trade-in allowance on a used car than it is worth?
- How is the cost of a new capital asset calculated when a trade-in is involved?
- How are intangible assets different from property, plant, and equipment? the same?
- What is a patent? Assume a patent’s legal life is twenty years. Does a patent’s useful life correspond to its legal life? Why or why not? Support your answer with an example.
- How does a copyright differ from a trademark? Give an example of each.
- How are intangible assets valued, and what are their financial statement disclosure requirements?
- What is goodwill? How does it differ from an intangible asset? Why is a company’s internally-generated goodwill not recorded in its accounting records?
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