Question

If it is asking to calculate then could you please provide the formula?

1. What is included in the cost of Property, Plant, & Equipment ed in the cost of Property. Plant, & Equipment assets besides the purchase price. Be able to identify which asset category an Additional Cost would go to. 2. Result of misstating a payment between Capitalizing vs recording as revenue exper veen Capitalizing vs recording as revenue expenditure. What will be over or understated on Income Statement and Balance Sheet Calculate Depreciation Per Year using one of: Straight-line Method, Double Declining Balance Method, Units-of-Production Method. Know the differences between the methods 4. Calculate Gain or Loss on disposal of asset 5. Calculate Depletion Per Unit 6. Definitions for the types of intangible assets 7. Calculate Asset Turnover Ratio. 8. How to handle a plant asset when: fully depreciated or when disposed of and not fully depreciated 9. The definitions for the types of current liabilities (accounts payable, unearned revenue, warranties payable) 10. Difference between Gross and Net pay. 11. Calculate tax withheld (rates given). 12. JE for paid vacations 13. Calculate Estimated Warranty Expense

Answer 1

Solution to 1:

Apart from the purchase price of aProperty, Plant and Equipment, all the necessary costs which were essential to bring the asset in a usable condition and place for the intended use shall be included.

These costs include the following:

Installation, Delivery And handling, related professional fees for architects, cost of site preparation, estimated cost of dismantling and removing the asset and restoring the site.

Also, If the payment of an item of PPE is deferred, interest at market rate must be recognized.

The asset categories in PPE are Land, Building, Equipments, Land improvements and Other Asset’s improvement. Based on the occurrence of above expenses which are to be included in the cost of PPE, the specific expenses goes to the respective asset’s category.

However, there are certain expenses which are not to be included in the cost, these are,

Cost of introducing or launching new product/Facility, cost of conducting business in new location, administration and overhead expenses and other incidental expenses.

Solution to 2:

Result of a misstatement in payment between a capital expenditure and revenue expenditure is:

1. If Capital Expense is wrongly shown as a Revenue expense, the value of that particular asset to which the capital expense relates to is UNDERSTATED and with the same amount the profit of the year is UNDERSTATED.
2. If Revenue Expense is wrongly shown as a Capital expense, the value of that particular asset to which the capital expense relates to is OVERSTATED and with the same amount the profit of the year is OVERSTATED.

Solution to 3:

Depreciation per year:

As per Straight value method= (Fixed asset’s cost – salvage Value)/Useful life of the asset in years

As per Double Declining method = 2* (Asset Cost – Residual Value)/Useful life of the asset in years

As per Unit of production Method= [(Asset Cost – Residual Value)/Useful life of the asset in terms of units production (Not years)] * Units produced

Solution to 4:

Gain/ Loss on disposal of asset= Proceeds from sale – (Cost of the asset – Accumulated Depreciation)