CAPITULO 11 INTERMEDIA - Chapter 11 Depreciation,...

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CHAPTER 11 DEPRECIATION, IMPAIRMENTS, AND DEPLETION This IFRS Supplement provides expanded discussions of accounting guidance under International Financial Reporting Standards (IFRS) for the topics in Intermediate Accounting. The discussions are organized according to the chapters in Intermediate Accounting (13 th or 14 th Editions) and therefore can be used to supplement the U.S. GAAP requirements as presented in the textbook. Assignment material is provided for each sup- plement chapter, which can be used to assess and reinforce student understanding of IFRS. DEPRECIATION Component Depreciation As indicated in Chapter 10, companies are required to use component depreciation . IFRS requires that each part of an item of property, plant, and equipment that is significant to the total cost of the asset must be depreciated separately. Companies therefore have to exercise judgment to determine the proper allocations to the components. As an example, when a company like Nokia (FIN) purchases a building, it must determine how the various building components (e.g., the foundation, structure, roof, heating and cool- ing system, and elevators) should be segregated and depreciated. To illustrate the accounting for component depreciation, assume that EuroAsia Airlines purchases an airplane for 100,000,000 on January 1, 2011. The airplane has a useful life of 20 years and a residual value of 0. EuroAsia uses the straight-line method of depreciation for all its airplanes. EuroAsia identifies the following components, amounts, and useful lives, as shown in Illustration 11-1. ILLUSTRATION 11-1 Airplane Components Components Component Amount Component Useful Life Airframe 60,000,000 20 years Engine components 32,000,000 8 years Other components 8,000,000 5 years ILLUSTRATION 11-2 Computation of Component Depreciation Components Component Amount 4 Useful Life 5 Component Depreciation Airframe 60,000,000 20 3,000,000 Engine components 32,000,000 8 4,000,000 Other components 8,000,000 5 1,600,000 Total 100,000,000 8,600,000 Illustration 11-2 shows the computation of depreciation expense for EuroAsia for 2011. As indicated, EuroAsia records depreciation expense of 8,600,000 in 2011, as follows. Depreciation Expense 8,600,000 Accumulated Depreciation—Airplane 8,600,000 On the statement of financial position at the end of 2011, EuroAsia reports the airplane as a single amount. The presentation is shown in Illustration 11-3. ILLUSTRATION 11-3 Presentation of Carrying Amount of Airplane Non-current assets Airplane 100,000,000 Less: Accumulated depreciation—airplane 8,600,000 91,400,000 Chapter 11 Depreciation, Impairments, and Depletion · 11–1 U.S. GAAP PERSPECTIVE Under U.S. GAAP, component depreciation is permitted but is rarely used.
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In many situations, a company may not have a good understanding of the cost of the individual components purchased. In that case, the cost of individual components should be estimated based on reference to current market prices (if available), discus-
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This note was uploaded on 02/02/2012 for the course ACCO 3350 taught by Professor Alvarez during the Spring '11 term at American International.

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CAPITULO 11 INTERMEDIA - Chapter 11 Depreciation,...

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