Normally, depreciation should not be recognized on plant assets during their construction period. What is the exception? Select the correct response: When the length of the construction period is unduly prolonged. When evidence indicates that operations will not produce sufficient revenue to cover all costs including deprecation. When partial use of the asset can be identified with an income during their construction period and corresponding costs can be ascertained. When the carrying amount of the property cannot be realized through sale.

Normally, depreciation should not be recognized on plant assets during their construction period. What is the exception? Select the correct response: When the length of the construction period is unduly prolonged. When evidence indicates that operations will not produce sufficient revenue to cover all costs including deprecation. When partial use of the asset can be identified with an income during their construction period and corresponding costs can be ascertained. When the carrying amount of the property cannot be realized through sale.

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter11: Depreciation, Depletion, Impairment, And Disposal

Section: Chapter Questions

Problem 4C: Depreciation continues to be one of the most controversial, difficult, and important problem areas...

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Depreciation continues to be one of the most controversial, difficult, and important problem areas in accounting. Required: 1. Explain the conventional accounting concept of depreciation accounting, and discuss its conceptual merit with respect to (a) the value of the asset, (b) the amount(s) expensed, and (c) the discretion of management in selecting the method. 2. Answer the following: a. Explain the factors that should be considered when applying the conventional concept of depreciation to the determination of how the value of a newly acquired computer system should be assigned to expense for financial reporting purposes. (Ignore income tax considerations for this case.) b. What depreciation methods might be used for the computer system?
When an independent valuation expert advises an entity that the salvage value of its plant and machinery had drastically changed and thus the change is material, the entity should (a) Retrospectively change the depreciation charge based on the revised salvage value. (b) Change the depreciation charge and treat it as a correction of an error. (c) Change the annual depreciation for the current year and future years. (d) Ignore the effect of the change on annual depreciation, because changes in salvage values would normally affect the future only since these are expected to be recovered in future.
Explain the reasons for the impairment and the justification for treating the write-down as a permanent decline in value of the asset(s). A difference between the book value of plant assets and the fair value generally exists.Explain the role technology and obsolescence have in the impairment of assets.
Which of the following statements is (are) correct?a. Accumulated depreciation represents a cash fund beingaccumulated for the replacement of plant assets.b. The cost of a machine includes the cost of repairingdamage to the machine during the installation process.c. A company may use different depreciation methods inits financial statements and its income tax return.d. The use of an accelerated depreciation method causesan asset to wear out more quickly than does use of thestraight-line method.
According to IAS 16 Property, Plant and Equipment, which, if any, of the following statements about depreciation are correct? The main purpose of depreciation is to reflect the fall in value of an asset over its useful life When an asset is revalued, subsequent depreciation relating to the amount of the revaluation should be debited to the revaluation surplus rather than to the income statement The provision for depreciation ensures that there are funds available to replace an asset when this becomes necessary, though in times of inflation, additional amounts may need to be set aside A change in depreciation method constitutes a change in accounting policy and must be accounted for as such
According to IAS 16 Property, Plant and Equipment, which, if any, of the following statements about depreciation are correct? The main purpose of depreciation is to reflect the fall in value of an asset over its useful life When an asset is revalued, subsequent depreciation relating to the amount of the revaluation should be debited to the revaluation surplus rather than to the income statement The provision for depreciation ensures that there are funds available to replace an asset when this becomes necessary, though in times of inflation, additional amounts may need to be set aside A change in depreciation method constitutes a change in accounting policy and must be accounted for as such A (1) and (4) B (2) and (3) C (4) only D None of the statements is correct
Which of the following statements about depreciation is not true? A. Depreciation does not mirror the actual loss of value over time. B. Depreciation is the allocation of the asset’s cost to expense over the expected years of use. C. If the fair value of the asset increases, depreciation is reversed to reflect the change in value. D. U.S. GAAP requires depreciation methods to be systematic and rational.
Indicate whether each of the following statements is true or false. The major objection to the straight-line method is that it assumes the asset’s economic usefulness and repair expense are the same each year. Answer The sum-of-the-years’-digits method does not deduct the residual value in computing the depreciation base. Answer IFRS allows only the cost and fair-value models to be applied to the measurement of property, plant and equipment.
Which of the following statements about depreciation is false?: Depreciation does not apply to most buildings because their usefulness and revenue producing ability generally remain intact over time. Recording depreciation in each period is an application of the expense recognition (matching) principle. Depreciation is required because of wear-and-tear and technological obsolescence. The balance in accumulated depreciation represents the total cost that has been charged to expense since placing an asset in service.
All of the following are true regarding the revaluation model allowed under GAAP except; Select one: a. Once selected, the revaluation policy applies to an entire class of property, plant and equipment. b. When an asset is revalued, any increase in carrying amount is reported as miscellaneous revenue. c. After initial recognition, the revalued amount is fair value less subsequent depreciation and impairment losses. d. Revaluations must be made regularly to ensure that the carrying value is not materially different from fair value.
What are some of the reasons for the impairment of intangible assets such as Goodwill? What are some justifications for treating the write-down as a permanent decline in value of the asset(s)? What are some justifications for considering that there has been a permanent increase in the value of the asset(s)? A difference between the book value and the fair value often exists. What role do technology advances and obsolescence have in deciding that assets have been impaired? Should both decrease and increases in the asset(s) value be reported in the financial statements? Why or why not?
The depreciation method used shall reflect the pattern in which the asset’s future economic benefits areexpected to be consumed by the entity. Which statement is incorrect regarding depreciation methods?a. Straight-line depreciation results in a constant charge over the useful life if the asset’s residual value does not change.b. The diminishing balance method results in a decreasing charge over the useful lifec. The units of production method results in a charge based on the expected use or outputd. A depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is appropriate.