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Intermediate Accounting: IFRS

Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Chapter 11

Depreciation, Impairments, and Depletion - all with Video Answers

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Chapter Questions

Problem 1

Distinguish among depreciation, depletion, and amortization.

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Problem 2

Identify the factors that are relevant in determining the annual depreciation charge, and explain whether these factors are determined objectively or whether they are based on judgment.

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04:00

Problem 3

Some believe that accounting depreciation measures the decline in the value of property, plant, and equipment. Do you agree? Explain.

Ameer Said
Ameer Said
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Problem 4

Explain how estimation of service lives can result in unrealistically high valuations of property, plant, and equipment.

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Problem 5

The plant manager of a manufacturing firm suggested in a conference of the company's executives that accountants should speed up depreciation on the machinery in the finishing department because improvements were rapidly making those machines obsolete, and a depreciation fund big enough to cover their replacement was needed. Discuss the accounting concept of depreciation and the effect on a business concern of the depreciation recorded for plant assets, paying particular attention to the issues raised by the plant manager.

Donna Densmore
Donna Densmore
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Problem 6

For what reasons are plant assets retired? Define inadequacy, supersession, and obsolescence.

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01:55

Problem 7

What basic questions must be answered before the amount of the depreciation charge can be computed?

Oluwadamilola Ameobi
Oluwadamilola Ameobi
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03:16

Problem 8

Workman Group purchased a machine on January 2, 2022, for $€ 800,000$. The machine has an estimated useful life of 5 years and a residual value of $€ 100,000$. Depreciation was computed by the $150 \%$ declining-balance method. What is the amount of accumulated depreciation at December 31, 2023?

Narayan Hari
Narayan Hari
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Problem 9

Silverman Company purchased machinery for $$\$ 162,000$$ on January 1,2022 . It is estimated that the machinery will have a useful life of 20 years, residual value of $$\$ 15,000$$, production of 84,000 units, and working hours of 42,000 . During 2022, the company uses the machinery for 14,300 hours, and the machinery produces 20,000 units. Compute depreciation under the straight-line, units-of-output, working hours, sum-of-the-years'digits, and double-declining-balance methods.

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02:10

Problem 10

What are the major factors considered in determining what depreciation method to use?

Jennifer Stoner
Jennifer Stoner
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Problem 11

What is component depreciation?

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01:26

Problem 12

A building that was purchased December 31,1998 , for $£ 2,500,000$ was originally estimated to have a life of 50 years with no residual value at the end of that time. Depreciation has been recorded through 2022. During 2023, an examination of the building by an engineering firm discloses that its estimated useful life is 15 years after 2022. What should be the amount of depreciation for 2023?

Carson Merrill
Carson Merrill
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Problem 13

Charlie Parker, president of Spinners Company, has recently noted that depreciation increases cash provided by operations and therefore depreciation is a good source of funds. Do you agree? Discuss.

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02:56

Problem 14

Andrea Shen purchased a computer for $€ 8,000$ on July 1,2022 . She intends to depreciate it over 4 years using the double-declining-balance method. Residual value is $€ 1$,ooo. Compute depreciation for 2023 .

Matt Just
Matt Just
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Problem 15

Walkin Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Walkin how to determine whether a writedown is permitted.

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Problem 16

Last year, Wyeth Company recorded an impairment on an asset held for use. Recent appraisals indicate that the asset has increased in value. Should Wyeth record this recovery in value?

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00:36

Problem 17

Toro SA has equipment with a carrying amount of $€_{700,000}$. The value-in-use of the equipment is $€ 705,000$, and its fair value less cost of disposal is $€ 590,000$. The equipment is expected to be used in operations in the future. What amount (if any) should Toro report as an impairment to its equipment?

Madysn Cardinal
Madysn Cardinal
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Problem 18

Explain how gains or losses on impaired assets should be reported in income.

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Problem 19

It has been suggested that plant and equipment could be replaced more quickly if depreciation rates for income tax and accounting purposes were substantially increased. As a result, business operations would receive the benefit of more modern and more efficient plant facilities. Discuss the merits of this proposition.

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Problem 20

List (a) the similarities and (b) the differences in the accounting treatments of depreciation and cost depletion.

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Problem 21

Describe cost depletion.

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01:54

Problem 22

Explain the difference between exploration and development costs as used in the extractive industries.

Ahmed Ali
Ahmed Ali
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02:16

Problem 23

In the extractive industries, businesses may pay dividends in excess of net income. What is the maximum permissible? How can this practice be justified?

Lottie Adams
Lottie Adams
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Problem 24

Shumway Oil uses successful-efforts accounting for its exploration and evaluation costs but also provides full-cost results as well. Under full-cost results, Shumway Oil would have reported retained earnings of $$\$ 42$$ million and net income of $$\$ 4$$ million. Under successful-efforts accounting, retained earnings were $$\$ 29$$ million and net income was $$\$ 3$$ million. Explain the difference between full-costing and successful-efforts accounting.

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Problem 25

Tanaka Ltd. has land that cost $Â¥_{15}, 000$,ooo. Its fair value on December 31,2022 , is $Â¥_{20}, 000,000$. Tanaka chooses the revaluation model to report its land. Explain how the land and its related valuation should be reported.

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Problem 26

Why might a company choose not to use revaluation accounting?

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Problem 27

Vodafone (GBR) reported net income of $£ 2.8$ billion, net sales of $£ 42$ billion, and average total assets of $£ 140$ billion. What is Vodafone's asset turnover? What is Vodafone's return on assets?

Rashmi Sinha
Rashmi Sinha
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01:15

Problem 28

Mandive Corp., in accordance with IFRS, applies revaluation accounting to plant assets with a carrying amount of $$\$ 400,000$$, a useful life of 4 years, and no residual value. At the end of year 1 , independent appraisers determine that the asset has a fair value of $$\$ 360,000$$. Prepare the entries to record this revaluation and depreciation, assuming straight-line depreciation.

Kratika Bhadauria
Kratika Bhadauria
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