Concept explainers
1.
Provide explanation regarding the expenditures that a company capitalizes if acquires equipment for cash.
2.a
Explain the manner in which the company ascertains the cost of the equipment purchased by exchanging bonds having an established market price.
2.b
Provide explanation regarding the expenditures that a company capitalizes if bonds do not have an established market price
2.c
Provide explanation regarding the expenditures that a company capitalizes if common stock does not have established market price.
2.d
Provide explanation regarding the expenditures that a company capitalizes if similar equipment has determinable market value.
3.
Provide explanation for the factors that is used by company to ascertain whether it capitalizes expenditures relating to property, plant and equipment.
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Intermediate Accounting: Reporting And Analysis
- S1: In an acquisition where the acquirer pays cash for the acquiree assets, the book value of the acquiree is to be used for valuation. S2: In acquisition of assets for assets, the ownership structure of the acquiree does notchange Both statements are Only S2 is Only S1 is Both statements are 2. If the value implied by the purchase price of an acquired company exceeds the fair values of identifiable net assets, the excess should be Allocatedgoodwill Allocated to reduce long-livedassets Allocated to reduce any previously recorded goodwill and classify any remainder as an ordinary Allocated to reduce current and long-livedassetsarrow_forwardUnder PFRS 3, when is a gain recognized in consolidating financial information? Group of answer choices a.When the amount of a bargain purchase exceeds the value of the applicable liability held by the acquired company. b.In an acquisition when the value of all assets and liabilities cannot be determined. c.When any bargain purchased is created d.In a combination created in the middle of the fiscal yeararrow_forwardRingler Corporation exchanges one plant asset for a similar plant asset and gives cash in the exchange. The exchange is not expected to cause a material change in the future cash flows for either entity. If a gain on the disposal of the old asset is indicated, the gain will A) effectively reduce the amount to be recorded as the cost of the new asset. B) be credited directly to the owner's capital account. C) be reported in the Other Revenues and Gains section of the income statement. D) effectively increase the amount to be recorded as the cost of the new asset.arrow_forward
- Net book value is Select one: a. Amount of which an asset is recognized in the balance sheet after deducting any accumulated depreciation. b. Net amount which the entity expects to obtain for an asset at the end of its useful life. c. Amount of cash or cash equivalent paid or the fair value of the other consideration given to acquire an asset at the time of its acquisition or construction. d. Cost of an asset or the amount substituted for cost in the financial statements, less its residual valuearrow_forwardUnder PFRS 3, when is a gain recognized in consolidating financial information? a. In a combination created in the middle of the fiscal year b. In an acquisition when the value of all assets and liabilities cannot be determined. c. When any bargain purchased is created d. When the amount of a bargain purchase exceeds the value of the applicable liability held by the acquired company.arrow_forwardOne financial accounting issue encountered when a companyconstructs its own plant is whether the interest coston funds borrowed to finance construction should becapitalized and then amortized over the life of the assetsconstructed. What is the justification for capitalizingsuch interest?arrow_forward
- In which of the following areas does the IASB not allow firms to choose between two acceptable treatments?a. Measuring property, plant, and equipment subsequent to acquisition.b. Measuring noncontrolling interest in a business combination.c. Recognizing development costs that meet criteria for capitalization as an asset.d. Classifying interest paid in the statement of cash flows.arrow_forwardIn reference to the downstream or upstream sale of depreciable assets, which of the following statements is correct? A. Gains and losses appear in the parent-company accounts in the year of sale and must be eliminated by the parent company determining its investment income under equity method of accounting. B. The initial effect of unrealized gains and losses from downstream sales of depreciable asset is different from the sale of non-depreciable assets. C. Gains, but not losses, appear in the parent-company accounts in the year of sale and must be eliminated by the parent company in determining its investment income under the equity method of accounting. D. Upstream sales from the subsidiary to the parent company always result in unrealized gains or losses.arrow_forwardWhich of the following statement is incorrect as to acquisition of Property, Plant and Equipment on a cash basis?. a. The cost of an item of property, plant and equipment is the cash price equivalent at the recognition date. b. Directly attributable cost to be capitalized includes freight, installation cost and other cost necessary in bringing the asset to the location and condition for the intended use. c. The cost of asset acquired on a cash basis simply includes the cash paid plus directly attributable cost d. When several assets are acquired at a “basket price” or “lump sum price”, it is necessary to apportion the single price to the assets acquired on the basis of relative carrying value.arrow_forward
- Q7 How are transaction costs associated with the acquisition of financial assets recognized in the financial statements of the acquiring entity? Select one: a. They are always capitalized to increase the value of the financial asset. b. The treatment depends on the classification of the financial asset at acquisition date. c. They are only capitalized if the amortized cost model is used. d. They are always charged in the profit or loss account in the year in which the transaction was made.arrow_forward1. IAS 36 applies to which of the following assets? (a) Inventories. (b) Financial assets. (c) Assets held for sale. (d) Property, plant, and equipment. 2. Value-in-use is (a) The market value. (b) The discounted present value of future cash flows arising from use of the asset and from its disposal. (c) The higher of an asset’s fair value less cost to sell and its market value. (d) The amount at which the asset is recognized in the balance sheet. 3. If the fair value less costs to sell cannot be determined (a) The asset is not impaired. (b) The recoverable amount is the value-in-use. (c) The net realizable value is used. (d) The carrying value of the asset remains the same. 4. If assets are to be disposed of (a) The recoverable amount is the fair value less costs to sell. (b) The recoverable amount is the value-in-use. (c) The asset is not impaired. (d) The recoverable amount is the carrying value. 5. Estimates of future cash flows normally would cover projections over a maximum…arrow_forwardValuing assets at the amount of cash or equivalents paid or the fair value of the consideration given to acquire them at the time of acquisition most closely describes which measurement of fi nancial statement elements? B . Historical cost.arrow_forward
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