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PROBLEM 11.2
Depreciation Expense
2019
2020
(a)
Straight-line:
(€89,000 – €5,000) ÷ 7 = €12,000/yr.
2019: €12,000 X 7/12
€7,000
2020: €12,000
€12,000
(d)
Sum-of-the-years’-digits:
1 + 2 + 3 + 4 + 5 + 6 + 7 = 28 or
n(n + 1)
=
7 x 8
= 28
(e)
Declining-balance:
Rate = 2/7 or (100% ÷ 7) x 2
2019: 7/12 X 2/7 X €89,000
14,833
2020: 2/7 X (€89,000 – €14,833) = €21,191
PROBLEM 11.3
(a)
Depreciation Expense .....................................................
3,900
Accumulated Depreciation—Asset A
(b)
Depreciation Expense .....................................................
6,720
Accumulated Depreciation—Asset B
([£51,000 – £3,000] ÷ [15,000 X 2,100]) ...............
6,720
Note: No correcting entry is needed for asset D. In 2019, Eshkol
records depreciation expense of £80,000 X [(100% ÷ 10) X 2] =
£16,000.
Depreciation Expense .....................................................
16,000
Copyright © 2018 Wiley Kieso, IFRS, 3/e, Solutions Manual (For Instructor Use Only) 11-43
Net
Income
Overstated
(Understated)
¥ 3,000
7,100
(8,250)
1
5
6
As Adjusted
Retained
Earnings
dr. (cr.)
¥ 3,000
6,400
16,800
Acc. Dep.,
Semitrucks
dr. (cr.)
¥(30,200)
9,000
14,400
(16,800)
Trucks
dr. (cr.)
¥94,000
40,000
(30,000)
42,000
(24,000)
_______
Per Company Books
Retained
Earnings
dr. (cr.)
(700)
25,050
Acc. Dep.
Semitrucks
dr. (cr.)
¥(30,200)
(25,050)
Trucks
dr. (cr.)
¥ 94,000
22,000
42,000
(2,500)
________
Balance
Purchase Truck #5
Trade Truck #3
Purchase of Truck #6
Disposal of Truck #4
Depreciation
(a)
1/1/17
7/1/17
7/1/19
7/1/19
12/31/19
PROBLEM 11.4 (Continued)
3Book value of Truck #1 [¥18,000 – (¥18,000/5 X 4 yrs.)] =
¥18,000 – ¥14,400 .............................................................
= ¥3,600
5Book value of Truck #4 ¥24,000 – [(¥24,000/5 X 3 yrs.)] .......
= ¥9,600
Cash received (¥700 + ¥2,500) .................................................
= (3,200)
Loss on disposal .............................................................
¥6,400
6Truck #2:
¥22,000/5 X 1/2
=
¥ 2,200
(b)
Compound journal entry December 31, 2020:
Accumulated Depreciation—Trucks .......................
66,550
PROBLEM 11.4 (Continued)
Summary of Adjustments:
Per
Books
As
Adjusted
Adjustment
Dr. or (Cr.)
Trucks
¥152,000
¥104,000
¥(48,000)
Accumulated Depreciation
¥129,150
¥ 62,600
¥ 66,550
Prior Years’ Income
PROBLEM 11.5
(a) The amounts to be recorded on the books of Darby Sporting Goods
Plc. as of December 31, 2019, for each of the properties acquired from
Quay Athletic Equipment are calculated as follows:
Cost Allocations to Acquired Properties
Appraisal
Value
Remaining
Purchase
Price
Allocations
Renovations
Capitalized
Interest
Total
(1) Land
£290,000
£290,000
Supporting Calculations
1Balance of purchase price to be allocated.
Total purchase price ...........................................................
£400,000
PROBLEM 11.5 (Continued)
2Capitalizable interest.
Expenditures
Capitalization
Period
Weighted-Average
Accumulated Expenditures
Date
Amount
1/1
£ 50,000
12/12
£ 50,000
Note to instructor: If the interest is allocated between the building and the
machinery, £14,700 (£21,000 X 105/150) would be allocated to the building
and £6,300 (£21,000 X 45/150) would be allocated to the machinery.
(b) Darby Sporting Goods Inc.’s 2020 depreciation expense, for book
purposes, for each of the properties acquired from Quay Athletic
Equipment Company is as follows:
1.
Land: No depreciation.
PROBLEM 11.5 (Continued)
(c) Arguments for the capitalization of interest costs include the following.
1. Diversity of practices among companies and industries called for
Arguments against the capitalization of interest include the following:
1. Interest capitalized in a period would tend to be offset by amorti-
(d) If Darby decides to use revaluation accounting for this building, then
revaluation applies to all assets in that class of assets. Darby cannot
selectively apply revaluation accounting to certain buildings but keep
PROBLEM 11.6
(1)
$80,000
Allocated in proportion to appraised values
(*1/10 X $800,000). *[$90,000 ÷ ($810,000 + $90,000)
(4)
$13,600
Same as prior year since it is straight-line depreciation.
(5)
$91,000
[Number of shares (2,500) times fair value ($30)]
plus demolition cost of existing building ($16,000).
(10)
$168,000
Total cost ($182,900) less repairs and maintenance
($14,900).
(11)
$36,000
Cost less residual ($168,000 – $6,000) times 8/36****.
PROBLEM 11.6 (Continued)
(13)
$52,000
Annual payment ($6,000) times present value of annuity
due at 8% for 11 years (7.710) plus down payment ($5,740).
This can be found in an annuity due table since the
PROBLEM 11.7
(a)
1.
Straight-line Method:
$90,000 – $6,000
= $16,800 a year
5 years
2.
Activity Method:
$90,000 – $6,000
= $.84 per hour
100,000 hours
Year
2017
20,000 hrs. X $.84 =
$16,800
3. Sum-of-the-Years’-Digits: 5 + 4 + 3 + 2 + 1 = 15 or [5 x (5 + 1)] ÷ 2
Year
2017
5/15 X ($90,000 – $6,000) =
$28,000
4. Double-Declining-Balance Method: Each year is 20% (100 % ÷ 5) of
its total life. Double the rate to 40% (20% x 2).
Year
2017
40% X $90,000 =
$36,000
PROBLEM 11.7 (Continued)
(b) 1. Straight-line Method:
Year
2017
$90,000 – $6,000
X 9/12 =
$12,600
5 years
2018
Full year
16,800
2. Sum-of-the-Years’-Digits:
2017
(5/15 X $84,000) X 9/12 =
$21,000
PROBLEM 11.7 (Continued)
3. Double-Declining-Balance Method:
Year
Cost
Accum.
Depr. at
beg. of
Year
Book
Value at
beg. of
Year
Depr.
Expense
2017
$90,000
—
$90,000
$27,000 (1)
(1) $90,000 X 40% X 9/12
(2) ($90,000 – $27,000) X 40%
PROBLEM 11.8
The straight-line method would provide the highest total net income for
(1) Straight-line:
R$1,260,000 – R$60,000 = R$1,200,000***
= R$240,000
5 years
Year
Depreciation
Expense
Accumulated
Depreciation
2018
R$240,000
R$240,000
(2) Double-declining-balance:
Year
Depreciation
Expense
Accumulated
Depreciation
2018
R$504,000
(*40% X R$1,260,000)
R$504,000
(3) Sum-of-the-years’-digits:
Year
Depreciation
Expense
Accumulated
Depreciation
2018
R$400,000
(5/15*** X R$1,200,000**)
R$400,000
PROBLEM 11.8 (Continued)
(4) Units-of-output:
Year
Depreciation
Expense
Accumulated
Depreciation
2018
R$288,000
(R$24* X 12,000)
R$288,000
PROBLEM 11.9
(a) Carrying value of asset: €10,000,000 – €2,500,000* = €7,500,000.
*(€10,000,000 ÷ 8) X 2
(b) Depreciation Expense ................................... 1,400,000**
Accumulated Depreciation—
Equipment ......................................... 1,400,000
(c) No depreciation is recorded on impaired assets to be disposed of.
Recovery of impairment losses are recorded.
December 31, 2019
Loss on Impairment ...................................... 1,900,000
Accumulated Depreciation—
PROBLEM 11.10
Part I
(a) Calculation of the machine’s value-in-use at the end of 2019
Year
Future Cash
Flows
Present Value
Factor
Discounted
Cash Flow
2020
¥22,165
0.86957
¥ 19,274
2021
21,450
0.75614
16,219
The calculation of the impairment loss at the end of 2019 is as follows.
Machine
Carrying amount before impairment loss ........ ¥150,000
(b) December 31, 2019
PROBLEM 11.10 (Continued)
Part II
(c) Revised Cash Flows
Year
Future Cash
Flows
Present Value
Factor 15%
Discounted
Cash Flow
2024
¥30,321
.86957
¥ 26,366
Calculation of the reversal of the impairment loss at the end of 2023
Carrying amount at the end of 2019 (Part I) ....... ¥116,419
*Original cost ............................................ ¥150,000
Accumulated depreciation
based on historical cost (¥15,000 X 4) ... (60,000)
Costs to enhance .................................... 25,000
¥115,000
PROBLEM 11.11
(a) Cost per barrel: (£1,200,000 + £50,000) ÷ 500,000 = £2.5/barrel
(b) Sales (36,000 X £65) ........................................ £2,340,000
Expenses:
(c) Phelps has a choice on how to account for its exploration and evaluation
PROBLEM 11.12
(a) Estimated depletion:
Estimated Depletion
Depletion
Base
Estimated
Yield
Per
Ton
1ST & 11th
Yrs.
Each of Yrs.
2-10 Incl.
Estimated depreciation:
Asset
Cost
Per ton
Mined
1st
Yr.
Yrs.
2–5
6th
Yr.
Yrs.
7–10
11th
Yr.
Building
$36,000
$.30*
$1,800
$3,600
$3,600
$3,600
$1,800
(b) Depletion: $7.25 X 5,000 tons = $36,250
Depreciation:
Building $.30 X 5,000 =
$1,500
