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Unformatted text preview: Chapter 11 PP&E: Utilization & Impairment (Wrap) November 5, 2012 Fall 2012 Professor Maria Nondorf Date Activity Mon, 11/5 Ch 11 PP&E/Intangibles (Utilization and Impairment) Wrap Ch 12 Investments Part 1 Wed, 11/7 Homework for Ch 11 due on Wednesday, 11/7 (Start of Class) Ch 12 Investments - Wrap Fri, 11/2 Discussion session bSpace quiz due at 11:59 pm Homework for Ch 12 due on Wednesday, 11/14 1. Cutter Enterprises purchased equipment for $72,000 on January 1, 2011. The equipment is expected to have a five-year life and a residual value of $6,000. Using the double-declining balance method, depreciation for 2012 would be: a. $28,800. b. $18,240. c. $17,280. d. None of the above is correct. PP&E Utilization and Impairment Cost allocation (to the income statement) Depreciation Amortization Depreciation methods Impairment of fixed assets and intangibles Differences between US GAAP and IFRS The amortization process uses the straight-line method, but usually assumes residual value = 0. Amortization period is the shorter of the assets legal or contractual life. The amortization entry is: A contra-asset account is generally not used when recording the amortization of intangible assets. Amortization expense .................................. $$$ Intangible asset ........ $$$ To record amortization expense. Torch, Inc. has developed a new device. Patent registration costs consisted of $2,000 in attorney fees and $1,000 in federal registration fees. The device has a contractual (useful) life of 5 years. The legal life is 20 years. For year 1, what is Torchs amortization expense? Amortization expense ................................... 600 Patent ........................ 600 To record amortization of patent. 8 Yes Yes Sufficient control over resource exists? Future economic benefits exist? Future economic benefits are capable of being separately recognised? Goodwill Separate Intangible Asset Indefinite useful economic life? Do not amortize Amortize over useful economic life No No No No Y No Yes No Yes Economic benefit obtained contractually or legally? Capable of being separated? Yes Litigation costs to successfully defend intangible rights are capitalized and amortized over the remaining useful life of the asset. Litigation costs are expensed, except in rare situations when an expenditure increases future benefits. Costs of Defending Intangible Rights Not amortized. Subject to assessment for impairment of value and may be written down. Goodwill and Indefinite-Lived Intangibles NOTE: Finite-Lived Intangibles and PP&E also have to be tested for impairment even though they are depreciated/amortized! Intangible assets are reported at cost less accumulated amortization....
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