Deck 9: Long-Lived Assets

Question 1

All long-lived assets must be depreciated for accounting purposes.

Answer 1

False

Question 2

Land improvements decline in service potential with time.

Answer 2

True

Question 3

Architect's fee for the plans for a new building would be included in the cost of the land improvements.

Answer 3

False

Question 4

If insurance is incurred transporting the asset to its final position, this insurance will be added to the cost of the asset.

Question 5

If an item of property, plant, and equipment is recognized as an asset it is probable that the company will NOT receive economic benefits from the item.

Question 6

Subsequent to the acquisition of an asset, insurance costs would be added to the cost of the asset.

Question 7

The cost of land improvements is NOT depreciated because land improvements typically do not decline in value.

Question 8

Depreciation is a process of cost allocation.

Question 9

The expenditures necessary to bring the asset to the location and condition necessary to make it ready for its intended use would be included in the cost of the asset.

Question 10

If long-lived assets are intended for sale, they are included in property, plant, and equipment.

Question 11

An asset's cost is allocated to expense over the asset's useful life because the asset is used to help generate revenue over that period of time.

Question 12

Under IFRS, companies have two models they can choose between to account for their property, plant, and equipment: the cost model or the amortization model.

Question 13

All long-lived assets which are included in property, plant, and equipment must be used in the operations of the business.

Question 14

If paid by the purchaser, freight charges and insurance during transit are included in the cost of equipment.

Question 15

Any non-refundable taxes incurred on the acquisition of an asset would be expensed at the time of acquisition.

Question 16

Assets are depreciated over their useful lives even if the use of the asset is NOT directly related to earning profit.

Question 17

A basket purchase of long-lived assets requires that the fair values be assigned based on the cost of each asset.

Question 18

Depreciation is the systematic allocation of the cost of a long-lived asset, such as property, plant, and equipment, over the asset's physical life.

Question 19

Most Canadian companies reporting under IFRS do NOT use the revaluation method when accounting for their long-lived assets.

Question 20

Costs that benefit future periods are included in a long-lived asset account, and are called operating expenses.

Question 21

CRA does NOT allow taxpayers to estimate the useful lives of assets or depreciation rates.

Question 22

In the straight-line method, the higher the residual value the greater the profit.

Question 23

Residual value is NOT depreciated, since the amount is expected to be recovered at the end of the asset's useful life.

Question 24

In the diminishing-balance method, the depreciation expense will decrease each year.

Question 25

Using the units-of-production method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight-line method had been used.

Question 26

The units-of-production method is ideal for equipment whose production can be measured in units of output.

Question 27

The diminishing-balance method will yield a higher cost of goods sold.

Question 28

Once an asset is fully depreciated, no additional depreciation can be taken even though the asset is still being used by the business.

Question 29

In calculating depreciation, both the long-lived asset's cost and useful life are based on estimates.

Question 30

Subject to acquisition, all costs that relate to that asset are classified as operating expenses.

Question 31

Under the double diminishing-balance method, the depreciation rate used each year remains constant.

Question 32

Recording depreciation on long-lived assets affects the balance sheet and the income statement.

Question 33

The units-of-production method of depreciation will result in the highest cash flow for the company.

Question 34

A company using the diminishing-balance method of depreciation will have higher profit in the early years of the asset.

Question 35

The Canada Revenue Agency does NOT require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.

Question 36

In the straight-line method of depreciation, the rate of depreciation remains constant over time.

Question 37

Straight-line depreciation will result in a higher profit than the double diminishing-balance method in the early years of an asset's life.

Question 38

The amount of an asset's residual value does NOT affect the calculation of depreciation in the units-of-production method.

Question 39

In the diminishing-balance method, the rate of depreciation decreases each year.

Question 40

The Accumulated Depreciation account represents a cash fund available to replace long-lived assets.

Question 41

IFRS allow the reversal of a previously recorded impairment loss.

Question 42

A loss on disposal of a long-lived asset as a result of a sale or a retirement is calculated in the same way.

Question 43

An impairment loss can only occur in long-lived assets with a finite life.

Question 44

Under CRA, depreciation expense is NOT optional in calculating profit.

Question 45

The first step in recording a disposal of a long-lived asset is to update that asset's depreciation.

Question 46

Additions and improvements are costs that are incurred to maintain the asset's operating efficiency, productive capacity, or expected useful life.

Question 47

In a disposal of an asset, if the carrying amount of the asset exceeds the proceeds received, profit will increase.

Question 48

A loss on disposal of long-lived assets can only occur if the cash proceeds received from the asset sale are less than the asset's carrying amount.

Question 49

A change in the estimated residual value of a long-lived asset requires a restatement of prior years' depreciation.

Question 50

A long-lived asset must be fully depreciated before it can be removed from the books.

Question 51

An impairment loss is the amount by which the asset's carrying amount exceeds its recoverable amount.

Question 52

The carrying amount of a long-lived asset is the amount originally paid for the asset less anticipated residual value.

Question 53

Under IFRS, at each year end, the company must determine whether or not an impairment loss still exists by measuring the asset's recoverable amount.

Question 54

Additions and improvements to a long-lived asset that increase the asset's operating efficiency, productive capacity, or expected useful life are generally expensed in the period incurred.

Question 55

A higher trade-in value will increase the profit of the company disposing of an asset.

Question 56

The cost of natural resources is NOT allocated to expense because the natural resources are replaceable only by an act of nature.

Question 57

Under the revaluation model, the carrying amount of property, plant, and equipment is its fair value plus any subsequent accumulated depreciation less any subsequent impairment losses.

Question 58

When an asset is retired, there are no proceeds received.

Question 59

Ordinary repairs are costs to maintain the asset's operating efficiency and expected productive life.

Question 60

In a retirement of an asset, if the carrying amount of the asset is greater than $1, profit will increase.

Question 61

Which of the following would NOT be considered an addition to the capital cost of an asset?

A) HST paid on the asset
B) insurance paid when the asset was in transit from the supplier
C) installation fee when asset is delivered
D) freight costs paid by the purchaser

Question 62

If an intangible with an indefinite life is disposed of, there is no effect on profit.

Question 63

Goodwill CANNOT be sold individually as it is part of the business as a whole.

Question 64

Conceptually, the cost allocation procedure for natural resources parallels that of property, plant, and equipment.

Question 65

IFRS does allow for reversals of impairment losses on both finite-life and other indefinite-life intangible assets if their value increases in the future.

Question 66

The amortizable amount of an intangible should be allocated over the shorter of the estimated useful life and legal life.

Question 67

Goodwill should be amortized on the lesser of useful life or 20 years.

Question 68

Companies must report goodwill separately from property, plant, and equipment, and intangible assets.

Question 69

Natural resources are often called wasting assets because it is difficult to use the assets in an efficient manner.

Question 70

Impairment losses on goodwill are NEVER reversed.

Question 71

The diminishing-balance method is the most common method of depreciation for natural resources.

Question 72

Goodwill has an indefinite life.

Question 73

Intangible assets have unlimited life because they have no physical substance.

Question 74

The asset turnover ratio indicates how efficiently a company uses its assets to generate sales.

Question 75

A franchise is a contractual arrangement under which the franchisor grants the franchisee the right to sell certain products and/or to provide specific services.

Question 76

The return on assets is calculated by dividing net income by total assets.

Question 77

Natural resources do NOT have to be tested for impairment annually.

Question 78

It is NOT necessary to disclose the amount of accumulated amortization in the financial statements.

Question 79

Accumulated depreciation is only recognized on natural resources that have been extracted and sold during the period.

Question 80

The diminishing-balance method of amortization is the most common method of amortization for intangibles.