Test Bank for Accounting Principles 6th Canadian Edition
(Volume 2) Weygandt Kieso Kimmel Trenholm Kinnear Barlow
Answers At The End Of Each Chapter
CHAPTER 9
LONG-LIVED ASSETS
SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S
TAXONOMY
Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT
Exercises
1. 1 AN 9. 2 AP 17. 2, 4 AP 25. 4 AP 33. 7 AP
2. 1 C 10. 2 AP 18. 3 AP 26. 5 AP 34. 7 AN
3. 1 AN 11. 2 AP 19. 3 AP 27. 5 AP 35. 7 AN
4. 1 C 12. 2 AP 20. 3 AN 28. 5 AP 36. 7 AP
5. 1,2 AP 13. 2 AP 21. 3 AP 29. 5,6 AP
6. 1,2 AP 14. 2 AN 22. 3 AP 30. 6 AN
7. 1,2 AP 15. 2, 3 AP 23. 4 AP 31. 6 AP
8. 1,2 AP 16. 2, 4 AP 24. 4 AP 32. 6,7 AP
Note: AN = Analysis AP = Application C = Comprehension
,9-2 Exercises for Accounting Principles, Sixth Canadian Edition
SUMMARY OF QUESTIONS BY LEVEL OF DIFFICULTY (LOD)
Item SO LOD Item SO LOD Item SO LOD Item SO LOD Item SO LOD
Exercises
1. 1 M 9. 2 E 17. 2,4 H 25. 4 M 33. 7 M
2. 1 E 10. 2 E 18. 3 E 26. 5 M 34. 7 E
3. 1 E 11. 2 M 19. 3 E 27. 5 E 35. 7 M
4. 1 M 12. 2 M 20. 3 M 28. 5 H 36. 7 E
5. 1,2 E 13. 2 H 21. 3 H 29. 5,6 M
6. 1,2 M 14. 2 M 22. 3 H 30. 6 H
7. 1,2 H 15. 2,3 H 23. 4 H 31. 6 M
8. 1,2 H 16. 2,4 H 24. 4 M 32. 6,7 M
Note: E = Easy M = Medium H=Hard
, Long-Lived Assets 9-3
CHAPTER STUDY OBJECTIVES
1. Determine the cost of property, plant, and equipment. The cost of property, plant, and
equipment includes all costs that are necessary to acquire the asset and make it ready for its
intended use. All costs that benefit future periods (that is, capital expenditures) are included in
the cost of the asset. When applicable, cost also includes asset retirement costs. When
multiple assets are purchased in one transaction, or when an asset has significant
components, the cost is allocated to each individual asset or component using their relative
fair values.
2. Explain and calculate depreciation. After acquisition, assets are accounted for using the
cost model or the revaluation model. Depreciation is recorded and assets are carried at cost
less accumulated depreciation. Depreciation is the allocation of the cost of a long-lived asset
to expense over its useful life (its service life) in a rational and systematic way. Depreciation is
not a process of valuation and it does not result in an accumulation of cash. There are three
commonly used depreciation methods:
Method Effect on Annual Calculation
Depreciation
Straight-line Constant amount (Cost − residual value) ÷
estimated useful life (in
years)
Diminishing- Diminishing amount Carrying amount at
balance beginning of year ×
diminishing-balance rate
Units-of- Varying amount (Cost − residual value) ÷
production total estimated units of
production × actual activity
during the year
Each method results in the same amount of depreciation over the asset’s useful life.
Depreciation expense for income tax purposes is called capital cost allowance (CCA). The
single diminishing-balance method is required and depreciation rates are prescribed.
3. Explain the factors that cause changes in periodic depreciation and calculate revisions.
A revision to depreciation will be required if there are (a) capital expenditures during the
asset’s useful life, (b) impairments in the asset’s fair value, (c) changes in the asset’s fair
value when using the revaluation model, and/or (d) changes in the appropriate depreciation
method, estimated useful life, or residual value. An impairment loss must be recorded if the
recoverable amount is less than the carrying amount. Only under IFRS can impairment losses
be reversed in future periods if the recoverable amount increases. Revisions of periodic
depreciation are made in present and future periods, not retroactively. The new annual
depreciation is determined by using the depreciable amount (carrying amount less the revised
residual value), and the remaining useful life, at the time of the revision.
4. Account for the disposal of property, plant, and equipment. The accounting for the
, 9-4 Exercises for Accounting Principles, Sixth Canadian Edition
disposal of a piece of property, plant, or equipment through retirement or sale is as follows:
(a) Update any unrecorded depreciation for partial periods since depreciation was last
recorded.
(b) Calculate the carrying amount (cost – accumulated depreciation).
(c) Calculate any gain (proceeds > carrying amount) or loss (proceeds < carrying amount) on
disposal.
(d) Remove the asset and accumulated depreciation accounts at the date of disposal. Record
the proceeds received and the gain or loss, if any.
An exchange of assets is recorded as the purchase of a new asset and the sale of an old
asset. The new asset is recorded at the fair value of the asset given up plus any cash paid (or
less any cash received). The fair value of the asset given up is compared with its carrying
amount to calculate the gain or loss. If the fair value of the new asset or the asset given up
cannot be determined, the new long-lived asset is recorded at the carrying amount of the old
asset that was given up, plus any cash paid (or less any cash received).
5. Calculate and record depreciation of natural resources. The units-of-production method of
depreciation is generally used for natural resources. The depreciable amount per unit is
calculated by dividing the total depreciable amount by the number of units estimated to be in
the resource. The depreciable amount per unit is multiplied by the number of units that have
been extracted to determine the annual depreciation. The depreciation and any other costs to
extract the resource are recorded as inventory until the resource is sold. At that time, the costs
are transferred to cost of resource sold on the income statement. Revisions to depreciation
will be required for capital expenditures during the asset’s useful life, for impairments, and for
changes in the total estimated units of the resource.
6. Identify the basic accounting issues for intangible assets and goodwill. The accounting
for tangible and intangible assets is much the same. Intangible assets are reported at cost,
which includes all expenditures necessary to prepare the asset for its intended use. An
intangible asset with a finite life is amortized over the shorter of its useful life or legal life,
usually on a straight-line basis. The extent of the annual impairment tests depends on whether
IFRS or ASPE is followed and if the intangible had a finite or indefinite life. Intangible assets
with indefinite lives and goodwill are not amortized and are tested at least annually for
impairment. Impairment losses on goodwill are never reversed under both IFRS and ASPE.
Impairment losses on intangible assets are never reversed under ASPE.
7. Illustrate the reporting and analysis of long-lived assets. It is common for property, plant,
and equipment, and natural resources to be combined in financial statements under the
heading “property, plant, and equipment.” Intangible assets with finite and indefinite lives are
sometimes combined under the heading “intangible assets” or are listed separately. Goodwill
must be presented separately. Either on the balance sheet or in the notes, the cost of the
major classes of long-lived assets is presented. Accumulated depreciation (if the asset is
depreciable) and carrying amount must be disclosed either in the balance sheet or in the
notes. The depreciation and amortization methods and rates, as well as the annual
depreciation expense, must also be indicated. The company’s impairment policy and any
impairment losses should be described and reported. Under IFRS, companies must include a
reconciliation of the carrying amount at the beginning and end of the period for each class of
long-lived assets and whether the cost or revaluation model is used.
(Volume 2) Weygandt Kieso Kimmel Trenholm Kinnear Barlow
Answers At The End Of Each Chapter
CHAPTER 9
LONG-LIVED ASSETS
SUMMARY OF QUESTIONS BY STUDY OBJECTIVES AND BLOOM’S
TAXONOMY
Item SO BT Item SO BT Item SO BT Item SO BT Item SO BT
Exercises
1. 1 AN 9. 2 AP 17. 2, 4 AP 25. 4 AP 33. 7 AP
2. 1 C 10. 2 AP 18. 3 AP 26. 5 AP 34. 7 AN
3. 1 AN 11. 2 AP 19. 3 AP 27. 5 AP 35. 7 AN
4. 1 C 12. 2 AP 20. 3 AN 28. 5 AP 36. 7 AP
5. 1,2 AP 13. 2 AP 21. 3 AP 29. 5,6 AP
6. 1,2 AP 14. 2 AN 22. 3 AP 30. 6 AN
7. 1,2 AP 15. 2, 3 AP 23. 4 AP 31. 6 AP
8. 1,2 AP 16. 2, 4 AP 24. 4 AP 32. 6,7 AP
Note: AN = Analysis AP = Application C = Comprehension
,9-2 Exercises for Accounting Principles, Sixth Canadian Edition
SUMMARY OF QUESTIONS BY LEVEL OF DIFFICULTY (LOD)
Item SO LOD Item SO LOD Item SO LOD Item SO LOD Item SO LOD
Exercises
1. 1 M 9. 2 E 17. 2,4 H 25. 4 M 33. 7 M
2. 1 E 10. 2 E 18. 3 E 26. 5 M 34. 7 E
3. 1 E 11. 2 M 19. 3 E 27. 5 E 35. 7 M
4. 1 M 12. 2 M 20. 3 M 28. 5 H 36. 7 E
5. 1,2 E 13. 2 H 21. 3 H 29. 5,6 M
6. 1,2 M 14. 2 M 22. 3 H 30. 6 H
7. 1,2 H 15. 2,3 H 23. 4 H 31. 6 M
8. 1,2 H 16. 2,4 H 24. 4 M 32. 6,7 M
Note: E = Easy M = Medium H=Hard
, Long-Lived Assets 9-3
CHAPTER STUDY OBJECTIVES
1. Determine the cost of property, plant, and equipment. The cost of property, plant, and
equipment includes all costs that are necessary to acquire the asset and make it ready for its
intended use. All costs that benefit future periods (that is, capital expenditures) are included in
the cost of the asset. When applicable, cost also includes asset retirement costs. When
multiple assets are purchased in one transaction, or when an asset has significant
components, the cost is allocated to each individual asset or component using their relative
fair values.
2. Explain and calculate depreciation. After acquisition, assets are accounted for using the
cost model or the revaluation model. Depreciation is recorded and assets are carried at cost
less accumulated depreciation. Depreciation is the allocation of the cost of a long-lived asset
to expense over its useful life (its service life) in a rational and systematic way. Depreciation is
not a process of valuation and it does not result in an accumulation of cash. There are three
commonly used depreciation methods:
Method Effect on Annual Calculation
Depreciation
Straight-line Constant amount (Cost − residual value) ÷
estimated useful life (in
years)
Diminishing- Diminishing amount Carrying amount at
balance beginning of year ×
diminishing-balance rate
Units-of- Varying amount (Cost − residual value) ÷
production total estimated units of
production × actual activity
during the year
Each method results in the same amount of depreciation over the asset’s useful life.
Depreciation expense for income tax purposes is called capital cost allowance (CCA). The
single diminishing-balance method is required and depreciation rates are prescribed.
3. Explain the factors that cause changes in periodic depreciation and calculate revisions.
A revision to depreciation will be required if there are (a) capital expenditures during the
asset’s useful life, (b) impairments in the asset’s fair value, (c) changes in the asset’s fair
value when using the revaluation model, and/or (d) changes in the appropriate depreciation
method, estimated useful life, or residual value. An impairment loss must be recorded if the
recoverable amount is less than the carrying amount. Only under IFRS can impairment losses
be reversed in future periods if the recoverable amount increases. Revisions of periodic
depreciation are made in present and future periods, not retroactively. The new annual
depreciation is determined by using the depreciable amount (carrying amount less the revised
residual value), and the remaining useful life, at the time of the revision.
4. Account for the disposal of property, plant, and equipment. The accounting for the
, 9-4 Exercises for Accounting Principles, Sixth Canadian Edition
disposal of a piece of property, plant, or equipment through retirement or sale is as follows:
(a) Update any unrecorded depreciation for partial periods since depreciation was last
recorded.
(b) Calculate the carrying amount (cost – accumulated depreciation).
(c) Calculate any gain (proceeds > carrying amount) or loss (proceeds < carrying amount) on
disposal.
(d) Remove the asset and accumulated depreciation accounts at the date of disposal. Record
the proceeds received and the gain or loss, if any.
An exchange of assets is recorded as the purchase of a new asset and the sale of an old
asset. The new asset is recorded at the fair value of the asset given up plus any cash paid (or
less any cash received). The fair value of the asset given up is compared with its carrying
amount to calculate the gain or loss. If the fair value of the new asset or the asset given up
cannot be determined, the new long-lived asset is recorded at the carrying amount of the old
asset that was given up, plus any cash paid (or less any cash received).
5. Calculate and record depreciation of natural resources. The units-of-production method of
depreciation is generally used for natural resources. The depreciable amount per unit is
calculated by dividing the total depreciable amount by the number of units estimated to be in
the resource. The depreciable amount per unit is multiplied by the number of units that have
been extracted to determine the annual depreciation. The depreciation and any other costs to
extract the resource are recorded as inventory until the resource is sold. At that time, the costs
are transferred to cost of resource sold on the income statement. Revisions to depreciation
will be required for capital expenditures during the asset’s useful life, for impairments, and for
changes in the total estimated units of the resource.
6. Identify the basic accounting issues for intangible assets and goodwill. The accounting
for tangible and intangible assets is much the same. Intangible assets are reported at cost,
which includes all expenditures necessary to prepare the asset for its intended use. An
intangible asset with a finite life is amortized over the shorter of its useful life or legal life,
usually on a straight-line basis. The extent of the annual impairment tests depends on whether
IFRS or ASPE is followed and if the intangible had a finite or indefinite life. Intangible assets
with indefinite lives and goodwill are not amortized and are tested at least annually for
impairment. Impairment losses on goodwill are never reversed under both IFRS and ASPE.
Impairment losses on intangible assets are never reversed under ASPE.
7. Illustrate the reporting and analysis of long-lived assets. It is common for property, plant,
and equipment, and natural resources to be combined in financial statements under the
heading “property, plant, and equipment.” Intangible assets with finite and indefinite lives are
sometimes combined under the heading “intangible assets” or are listed separately. Goodwill
must be presented separately. Either on the balance sheet or in the notes, the cost of the
major classes of long-lived assets is presented. Accumulated depreciation (if the asset is
depreciable) and carrying amount must be disclosed either in the balance sheet or in the
notes. The depreciation and amortization methods and rates, as well as the annual
depreciation expense, must also be indicated. The company’s impairment policy and any
impairment losses should be described and reported. Under IFRS, companies must include a
reconciliation of the carrying amount at the beginning and end of the period for each class of
long-lived assets and whether the cost or revaluation model is used.
