CHAPTER 9
Plant Assets, Natural Resources,
and Intangible Assets
ASSIGNMENT CLASSIFICATION TABLE
Study Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
B
Problems
1, 2
1
1, 2, 3
1A
1B
2
4
1.
Describe how the cost principle
applies to plant assets.
1, 2, 3
2.
Explain the concept of
depreciation.
4, 5
3.
Compute periodic depreciation
using different methods.
6, 7, 8, 24,
25, 26
3, 4, 5,
6, 7
5, 6, 7, 8
2A, 3A,
4A, 5A
2B, 3B,
4B, 5B
4.
Describe the procedure for
revising periodic depreciation.
9, 10
8, 9
9, 10
4A
4B
5.
Distinguish between revenue
and capital expenditures, and
explain the entries for each.
11, 27
10
6.
Explain how to account for
the disposal of a plant asset.
12, 13
11, 12
3
11, 12
5A, 6A
5B, 6B
7.
Compute periodic depletion
of extractable natural
resources.
14, 15
13
4
13
8.
Explain the basic issues
related to accounting for
intangible assets.
16, 17, 18,
19, 20,
21, 22
14, 15
4
14, 15
7A, 8A
7B, 8B
9.
Indicate how plant assets,
natural resources, and
intangible assets are
reported.
23
16, 17
16
5A, 7A,
9A
5B, 7B, 9B
Explain how to account
for the exchange of plant
assets.
28, 29
18, 19
17, 18
*10.
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Weygandt, IFRS, 1/e, Solutions Manual
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9-1
ASSIGNMENT CHARACTERISTICS TABLE
Problem
Number
9-2
Description
Difficulty
Level
Time
Allotted (min.)
1A
Determine acquisition costs of land and building.
Simple
20–30
2A
Compute depreciation under different methods.
Simple
30–40
3A
Compute depreciation under different methods.
Moderate
30–40
4A
Calculate revisions to depreciation expense.
Moderate
20–30
5A
Journalize a series of equipment transactions related to
purchase, sale, retirement, and depreciation.
Moderate
40–50
6A
Record disposals.
Simple
30–40
7A
Prepare entries to record transactions related to acquisition
and amortization of intangibles; prepare the intangible
assets section.
Moderate
30–40
8A
Prepare entries to correct errors made in recording and
amortizing intangible assets.
Moderate
30–40
9A
Calculate and comment on asset turnover ratio.
Moderate
5–10
1B
Determine acquisition costs of land and building.
Simple
20–30
2B
Compute depreciation under different methods.
Simple
30–40
3B
Compute depreciation under different methods.
Moderate
30–40
4B
Calculate revisions to depreciation expense.
Moderate
20–30
5B
Journalize a series of equipment transactions related to
purchase, sale, retirement, and depreciation.
Moderate
40–50
6B
Record disposals.
Simple
30–40
7B
Prepare entries to record transactions related to acquisition
and amortization of intangibles; prepare the intangible
assets section.
Moderate
30–40
8B
Prepare entries to correct errors made in recording and
amortizing intangible assets.
Moderate
30–40
9B
Calculate and comment on asset turnover ratio.
Moderate
5–10
Copyright © 2011 John Wiley & Sons, Inc.
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(For Instructor Use Only)
WEYGANDT IFRS 1E
CHAPTER 9
PLANT ASSETS, NATURAL RESOURCES,
AND INTANGIBLE ASSETS
Number
SO
BT
Difficulty
Time (min.)
BE1
1
AP
Simple
2–4
BE2
1
AP
Simple
1–2
BE3
3
AP
Simple
2–4
BE4
3
E
Moderate
4–6
BE5
3
AP
Simple
4–6
BE6
3
AP
Simple
2–4
BE7
3
AP
Simple
4–6
BE8
4
AN
Moderate
4–6
BE9
4
AN
Moderate
4–6
BE10
5
AP
Simple
2–4
BE11
6
AP
Simple
4–6
BE12
6
AP
Simple
4–6
BE13
7
AP
Simple
4–6
BE14
8
AP
Simple
2–4
BE15
8
AP
Simple
4–6
BE16
9
AP
Simple
4–6
BE17
9
AP
Simple
2–4
*BE18
10
AP
Simple
4–6
*BE19
10
AP
Simple
4–6
DI1
1
C
Simple
4–6
DI2
2
AP
Simple
2–4
DI3
6
AP
Simple
6–8
DI4
7, 8
K
Simple
2–4
EX1
1
C
Simple
6–8
EX2
1
AP
Simple
4–6
EX3
1
AP
Simple
4–6
EX4
2
C
Simple
4–6
EX5
3
AP
Simple
6–8
EX6
3
AP
Simple
8–10
EX7
3
AP
Simple
10–12
EX8
3
AP
Simple
8–10
EX9
4
AN
Moderate
8–10
EX10
4
AP
Moderate
6–8
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(For Instructor Use Only)
9-3
PLANT ASSETS, NATURAL RESOURCES, AND INTANGIBLE
ASSETS (Continued)
Number
SO
BT
Difficulty
Time (min.)
EX11
6
AP
Moderate
8–10
EX12
6
AP
Moderate
10–12
EX13
7
AP
Simple
6–8
EX14
8
AP
Simple
4–6
EX15
8
AP
Simple
8–10
EX16
9
AP
Simple
2–4
EX17
10
AP
Moderate
8–10
EX18
10
AP
Moderate
8–10
P1A
1
C
Simple
20–30
P2A
3
AP
Simple
30–40
P3A
3
AN
Moderate
30–40
P4A
3, 4
AP
Moderate
20–30
P5A
3, 6, 9
AP
Moderate
40–50
P6A
6
AP
Simple
30–40
P7A
8, 9
AP
Moderate
30–40
P8A
8
AP
Moderate
30–40
P9A
9
AN
Moderate
5–10
P1B
1
C
Simple
20–30
P2B
3
AP
Simple
30–40
P3B
3
AN
Moderate
30–40
P4B
3, 4
AP
Moderate
20–30
P5B
3, 6, 9
AP
Moderate
40–50
P6B
6
AP
Simple
30–40
P7B
8, 9
AP
Moderate
30–40
P8B
8
AP
Moderate
30–40
P9B
9
AN
Moderate
5–10
BYP1
3, 8
AN
Simple
15–20
BYP2
9
AN, E
Simple
10–15
BYP3
2, 3
C
Simple
10–15
BYP4
3
AP, E
Moderate
20–25
BYP5
7
C
Simple
5–10
BYP6
4
E
Simple
10–15
9-4
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Copyright © 2011 John Wiley & Sons, Inc.
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Q9-13
Q9-15
Q9-16
Q9-17
Q9-18
Q9-19
Q9-12
Q9-14
DI9-4
6. Explain how to account for the
disposal of a plant asset.
7. Compute periodic depletion of
extractable natural resources.
8. Explain the basic issues related Q9-20
to accounting for intangible assets.
Broadening Your Perspective
*10. Explain how to account for the
exchange of plant assets.
Q9-21
Q9-22
DI9-4
E9-6
E9-7
E9-8
P9-2A
P9-4A
P9-7A
P9-8A
P9-7B
P9-8B
BE9-8
BE9-9
E9-9
BE9-18
BE9-19
E9-17
E9-18
Q9-23 E9-16 P9-5B P9-9A
BE9-16 P9-5A P9-7B P9-9B
BE9-17 P9-7A
BE9-14
BE9-15
E9-14
E9-15
BE9-13
E9-13
Analysis
P9-5A P9-3A
P9-2B P9-3B
P9-4B
P9-5B
E9-2
E9-3
BE9-11 E9-11 P9-6A
BE9-12 E9-12 P9-5B
DI9-3
P9-5A P9-6B
BE9-10
E9-10
P9-4A
P9-4B
BE9-3
BE9-4
BE9-5
BE9-6
BE9-7
E9-5
DI9-2
BE9-1
BE9-2
Application
Exploring the Web Decision Making Across Financial Reporting
Communication
the Organization
Comp. Analysis
Q9-29
Q9-11
Q9-27
5. Distinguish between revenue and
capital expenditures, and explain
the entries for each.
Q9-28
Q9-9
Q9-10
4. Describe the procedure for
revising periodic depreciation.
9. Indicate how plant assets, natural
resources, and intangible assets
are reported.
Q9-6
Q9-7
Q9-8
Q9-24
Q9-25
Q9-26
3. Compute periodic depreciation
using different methods.
Q9-4
E9-4
Q9-5
2. Explain the concept of
depreciation.
E9-1
P9-1A
P9-1B
Comprehension
Q9-1
Q9-2
Q9-3
DI9-1
Knowledge
1. Describe how the cost principle
applies to plant assets.
Study Objective
Synthesis
Comp. Analysis
Decision Making
Across the
Organization
Ethics Case
BE9-4
Evaluation
Correlation Chart between Bloom’s Taxonomy, Study Objectives and End-of-Chapter Exercises and Problems
BLOOM’S TAXONOMY TABLE
(For Instructor Use Only)
9-5
ANSWERS TO QUESTIONS
1.
For plant assets, the cost principle means that cost consists of all expenditures necessary to acquire
the asset and make it ready for its intended use.
2.
Examples of land improvements include driveways, parking lots, fences, and underground sprinklers.
3.
(a) When only the land is to be used, all demolition and removal costs of the building less any
proceeds from salvaged materials are necessary expenditures to make the land ready for its
intended use.
(b) When both the land and building are to be used, necessary costs of the building include
remodeling expenditures and the cost of replacing or repairing the roofs, floors, wiring, and
plumbing.
4.
You should explain to the president that depreciation is a process of allocating the cost of a plant
asset to expense over its service (useful) life in a rational and systematic manner. Recognition of
depreciation is not intended to result in the accumulation of cash for replacement of the asset.
5.
(a) Residual value, also called salvage value, is the expected value of the asset at the end of its
useful life.
(b) Residual value is used in determining depreciation in each of the methods except the decliningbalance method.
6.
(a) Useful life is expressed in years under the straight-line method and in units of activity under
the units-of-activity method.
(b) The pattern of periodic depreciation expense over useful life is constant under the straight-line
method and variable under the units-of-activity method.
7.
The effects of the three methods on annual depreciation expense are: Straight-line—constant
amount; units of activity—varying amount; declining-balance—decreasing amounts.
8.
Component depreciation is a method of allocating the cost of a plant asset into separate
parts based on the estimated useful lives of each component. IFRS requires an entity to
use component depreciation whenever significant parts of a plant asset have significantly
different useful lives.
9.
A revision of depreciation is made in current and future years but not retroactively. The rationale
is that continual restatement of prior periods would adversely affect confidence in the financial
statements.
10.
Revaluation is an accounting procedure that adjusts plant assets to fair value at the
reporting date. Revaluation must be applied annually to assets that are experiencing rapid
price changes.
9-6
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Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
Questions Chapter 9 (Continued)
11.
12.
Revenue expenditures are ordinary repairs made to maintain the operating efficiency and productive
life of the asset. Capital expenditures are additions and improvements made to increase operating
efficiency, productive capacity, or useful life of the asset. Revenue expenditures are recognized
as expenses when incurred; capital expenditures are generally debited to the plant asset affected.
In a sale of plant assets, the book value of the asset is compared to the proceeds received from the
sale. If the proceeds of the sale exceed the book value of the plant asset, a gain on disposal occurs. If
the proceeds of the sale are less than the book value of the plant asset sold, a loss on disposal occurs.
13. The plant asset and its accumulated depreciation should continue to be reported on the
statement of financial position without further depreciation adjustment until the asset is retired.
Reporting the asset and related accumulated depreciation on the statement of financial position
informs the reader of the financial statements that the asset is still in use. However, once an asset is
fully depreciated, even if it is still being used, no additional depreciation should be taken. In no
situation can the accumulated depreciation on the plant asset exceed its cost.
14.
Extractable natural resources consist of underground deposits of oil, gas, and minerals. These
long-lived productive assets have two distinguishing characteristics: they are physically extracted
in operations in or near the earth’s crust, and they are replaceable only by an act of nature.
15.
Depletion is the allocation of the cost of extractable resources to expense in a rational and
systematic manner over the resource’s useful life. It is computed by multiplying the depletion cost
per unit by the number of units extracted and sold.
16.
The terms depreciation, depletion, and amortization are all concerned with allocating the cost of
an asset to expense over the periods benefited. Depreciation refers to allocating the cost of a
plant asset to expense, depletion to recognizing the cost of an extractable resource as expense,
and amortization to allocating the cost of an intangible asset to expense.
17.
The intern is not correct. The cost of an intangible asset should be amortized over that asset’s
useful life (the period of time when operations are benefited by use of the asset). In addition,
some intangibles have indefinite lives and therefore are not amortized at all.
18.
The favorable attributes which could result in goodwill include exceptional management, desirable
location, good customer relations, skilled employees, high-quality products, and harmonious relations
with labor unions.
19.
Goodwill is the value of many favorable attributes that are intertwined in the business enterprise.
Goodwill can be identified only with the business as a whole and, unlike other assets, cannot be
sold separately. Goodwill can only be sold if the entire business is sold. And, if goodwill appears
on the statement of financial position, it means the company has purchased another company for
more than the fair value of its net assets.
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(For Instructor Use Only)
9-7
Questions Chapter 9 (Continued)
20.
Goodwill is recorded only when there is a transaction that involves the purchase of an entire
business. Goodwill is the excess of cost over the fair value of the net assets (assets less liabilities)
acquired. The recognition of goodwill without an exchange transaction would lead to subjective
valuations which would reduce the reliability of financial statements.
21.
Research and development costs present several accounting problems. It is sometimes difficult
to assign the costs to specific projects, and there are uncertainties in identifying the extent and
timing of future benefits. As a result, IFRS requires that research costs be recorded as an expense
when incurred. Development costs incurred prior to technological feasibility are also expensed
but development costs incurred after technological feasibility are capitalized.
22. Both types of development expenditures relate to the creation of new products but one is
expensed and the other is capitalized. Development costs incurred before a new product
achieves technological feasibility are recorded as development expenses and appear as part
of operating expenses on the income statement.
Cost incurred after technological feasibility are recorded as development costs and appear as an
intangible asset on the statement of financial position.
23.
McDonald’s asset turnover ratio is computed as follows:
Net sales
Average total assets
=
$20.5 billion
= .71 times
$28.9 billion
24. Since Resco uses the straight-line depreciation method, its depreciation expense will be lower in
the early years of an asset’s useful life as compared to using an accelerated method. Yapan’s
depreciation expense in the early years of an asset’s useful life will be higher as compared to
the straight-line method. Resco’s net income will be higher than Yapan’s in the first few years of
the asset’s useful life. And, the reverse will be true late in an asset’s useful life.
25. Yes, tax regulations often allow a company to use a different depreciation method on the tax
return than is used in preparing financial statements. Lopez Corporation uses an accelerated
depreciation method for tax purposes to minimize its income taxes and thereby the cash outflow
for taxes.
26. By selecting a longer estimated useful life, May Corp. is spreading the plant asset’s cost over a
longer period of time. The depreciation expense reported in each period is lower and net income is
higher. Won’s choice of a shorter estimated useful life will result in higher depreciation expense
reported in each period and lower net income.
27. Expensing these costs will make current period income lower but future period income higher because
there will be no additional depreciation expense in future periods. If the costs are ordinary repairs,
they should be expensed.
9-8
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Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
Questions Chapter 9 (Continued)
*28. When assets are exchanged, the gain or loss on disposal is computed as the difference between
the book value and the fair value of the asset given up at the time of exchange.
*29. Yes, Tatum should recognize a gain equal to the difference between the fair value of the old
machine and its book value. If the fair value of the old machine is less than its book value, Tatum
should recognize a loss equal to the difference between the two amounts.
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(For Instructor Use Only)
9-9
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 9-1
All of the expenditures should be included in the cost of the land. Therefore,
the cost of the land is $81,000, or ($70,000 + $3,000 + $2,500 + $2,000 + $3,500).
BRIEF EXERCISE 9-2
The cost of the truck is £31,900 (cash price £30,000 + sales tax £1,500 + painting
and lettering £400). The expenditures for insurance and motor vehicle license
should not be added to the cost of the truck.
BRIEF EXERCISE 9-3
Depreciable cost of $36,000, or ($42,000 – $6,000). With a four-year useful life,
annual depreciation is $9,000, or ($36,000 ÷ 4). Under the straight-line method,
depreciation is the same each year. Thus, depreciation is $9,000 for both the
first and second years.
BRIEF EXERCISE 9-4
It is likely that management requested this accounting treatment to boost
reported net income. Land is not depreciated; thus, by reporting land
at HK$1,200,000 above its actual value the company increased yearly
 HK$1,200,000 
or the reduction in depreciation
income by HK$60,000, 
 20 years 
expense. This practice is not ethical because management is knowingly
misstating asset values.
BRIEF EXERCISE 9-5
The declining balance rate is 50%, or (25% X 2) and this rate is applied to book
value at the beginning of the year. The computations are:
Book Value
Year 1
Year 2
9-10
$42,000
($42,000 – $21,000)
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X
Rate
50%
50%
=
Depreciation
$21,000
$10,500
Weygandt, IFRS, 1/e, Solutions Manual
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BRIEF EXERCISE 9-6
The depreciation cost per unit is 22 cents per mile computed as follows:
Depreciable cost ($33,500 – $500) ÷ 150,000 = $.22
Year 1
30,000 miles X $.22 = $6,600
Year 2
20,000 miles X $.22 = $4,400
BRIEF EXERCISE 9-7
Warehouse component:
HVAC component:
($280,000 – $40,000)/20 = $12,000
$40,000/10
= $4,000
Total component depreciation in first year $16,000
BRIEF EXERCISE 9-8
Book value, 1/1/11.........................................................................................
Less: Salvage value ....................................................................................
Depreciable cost............................................................................................
Remaining useful life ...................................................................................
Revised annual depreciation (€18,000 ÷ 4)...........................................
€20,000
2,000
€18,000
4 years
€ 4,500
BRIEF EXERCISE 9-9
(a)
Accumulated Depreciation—Plant Assets ..................
Plant Assets..................................................................
Revaluation Surplus ..................................................
(To record revaluation of plant assets)
60,000
(b) Accumulated Depreciation—Plant Assets ..................
Revaluation Surplus ...........................................................
Plant Assets..................................................................
(To record revaluation of plant assets)
60,000
20,000
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20,000
40,000
(For Instructor Use Only)
80,000
9-11
BRIEF EXERCISE 9-10
1.
2.
Repair Expense....................................................................
Cash................................................................................
45
Delivery Truck ......................................................................
Cash................................................................................
400
45
400
BRIEF EXERCISE 9-11
(a) Accumulated Depreciation—Delivery
Equipment .........................................................................
Delivery Equipment....................................................
41,000
(b) Accumulated Depreciation—Delivery
Equipment .........................................................................
Loss on Disposal .................................................................
Delivery Equipment....................................................
39,000
2,000
41,000
41,000
Cost of delivery equipment
CHF41,000
Less accumulated depreciation
39,000
Book value at date of disposal
2,000
Proceeds from sale
0
Loss on disposal
CHF 2,000
BRIEF EXERCISE 9-12
(a) Depreciation Expense—Office Equipment..................
Accumulated Depreciation—Office
Equipment ................................................................
5,250
(b) Cash .........................................................................................
Accumulated Depreciation—Office Equipment.........
Loss on Disposal .................................................................
Office Equipment ........................................................
20,000
47,250
4,750
9-12
Copyright © 2011 John Wiley & Sons, Inc.
5,250
Weygandt, IFRS, 1/e, Solutions Manual
72,000
(For Instructor Use Only)
BRIEF EXERCISE 9-12 (Continued)
Cost of office equipment
Less accumulated depreciation
Book value at date of disposal
Proceeds from sale
Loss on disposal
$72,000
47,250*
24,750
20,000
$ 4,750
*$42,000 + $5,250
BRIEF EXERCISE 9-13
(a) Depletion cost per unit = ¥7,000,000 ÷ 35,000,000 = ¥.20 depletion cost
per ton
¥.20 X 6,000,000 = ¥1,200,000
Depletion Expense..............................................
Accumulated Depletion............................
1,200,000
(b) Ore mine.................................................................
Less: Accumulated depletion ........................
¥7,000,000
1,200,000
1,200,000
¥5,800,000
BRIEF EXERCISE 9-14
(a) Amortization Expense—Patent (R$120,000 ÷ 10) ....... 12,000
Patents.............................................................................
(b) Intangible Assets
Patents.............................................................................
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Weygandt, IFRS, 1/e, Solutions Manual
12,000
R$108,000
(For Instructor Use Only)
9-13
BRIEF EXERCISE 9-15
Research Expense .......................................................................
Development Expense ................................................................
Development Costs......................................................................
Cash .........................................................................................
(To record research and development costs)
300,000
400,000
200,000
900,000
BRIEF EXERCISE 9-16
SPAIN COMPANY
Statement of Financial Position (partial)
December 31, 2011
Intangible assets
Goodwill.....................................................
Property, plant, and equipment
Coal mine ..................................................
Less: Accumulated depletion............
Buildings ...................................................
Less: Accumulated depreciation .....
Total property, plant, and
equipment....................................
$410,000
$ 500,000
108,000
1,100,000
650,000
$392,000
450,000
842,000
BRIEF EXERCISE 9-17
 $37.3 + $44.6 
$61.5 ÷ 
 = 1.50 times
2


*BRIEF EXERCISE 9-18
Delivery Equipment (new)..........................................................
Accumulated Depreciation—Delivery Equipment .............
Loss on Disposal..........................................................................
Delivery Equipment (old) ..................................................
Cash .........................................................................................
9-14
Copyright © 2011 John Wiley & Sons, Inc.
24,000
30,000
12,000
Weygandt, IFRS, 1/e, Solutions Manual
61,000
5,000
(For Instructor Use Only)
*BRIEF EXERCISE 9-18 (Continued)
Fair value of old delivery
equipment
Cash paid
Cost of new delivery equipment
$19,000
5,000
$24,000
Fair value of old delivery
equipment
Book value of old delivery
equipment ($61,000 – $30,000)
Loss on disposal
$19,000
31,000
$12,000
*BRIEF EXERCISE 9-19
Delivery Equipment (new) .........................................................
Accumulated Depreciation—Delivery Equipment.............
Gain on Disposal .................................................................
Delivery Equipment (old) ..................................................
Cash.........................................................................................
Fair value of old delivery
equipment
Cash paid
Cost of new delivery equipment
Fair value of old delivery
equipment
Book value of old delivery
equipment ($61,000 – $30,000)
Gain on disposal
Copyright © 2011 John Wiley & Sons, Inc.
43,000
30,000
7,000
61,000
5,000
$38,000
5,000
$43,000
$38,000
31,000
$ 7,000
Weygandt, IFRS, 1/e, Solutions Manual
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9-15
SOLUTIONS FOR DO IT! REVIEW EXERCISES
DO IT! 9-1
The following four items are expenditures necessary to acquire the truck
and get it ready for use:
Negotiated purchase price .......................................................
Installation of special shelving ...............................................
Painting and lettering.................................................................
Sales tax .........................................................................................
Total paid...............................................................................
£24,000
1,100
900
1,300
£27,300
Thus, the cost of the truck is £27,300. The payments for the motor vehicle
license and for the insurance are operating costs and are expensed in the
first year of the truck’s life.
DO IT! 9-2
Depreciation expense = Cost – Residual value = $15,000 – $1,000 = $1,750
Useful life
8 years
The entry to record the first year’s depreciation would be:
Depreciation Expense................................................................
Accumulated Depreciation ................................................
(To record annual depreciation on mower)
1,750
1,750
DO IT! 9-3
(a) Sale of truck for cash at a gain:
Cash ........................................................................................
Accumulated Depreciation—Truck................................
Truck................................................................................
Gain on Disposal..........................................................
9-16
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26,000
28,000
50,000
4,000
(For Instructor Use Only)
DO IT! 9-3 (Continued)
(b) Sale of truck for cash at a loss:
Cash........................................................................................
Loss on Disposal ................................................................
Accumulated Depreciation—Truck ...............................
Truck ...............................................................................
15,000
7,000
28,000
50,000
DO IT! 9-4
1.
2.
3.
4.
5.
6.
b.
d.
e.
f.
a.
c.
Intangible assets
Amortization
Franchise
Development costs
Goodwill
Development expenses
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9-17
SOLUTIONS TO EXERCISES
EXERCISE 9-1
(a) Under the cost principle, the acquisition cost for a plant asset includes
all expenditures necessary to acquire the asset and make it ready for its
intended use. For example, the cost of factory machinery includes the
purchase price, freight costs paid by the purchaser, insurance costs
during transit, and installation costs.
(b) 1.
2.
3.
4.
5.
6.
7.
8.
Land
Factory Machinery
Delivery Equipment
Land Improvements
Delivery Equipment
Factory Machinery
Prepaid Insurance
License Expense
EXERCISE 9-2
1.
2.
3.
4.
5.
6.
7.
8.
9.
9-18
Factory Machinery
Truck
Factory Machinery
Land
Prepaid Insurance
Land Improvements
Land Improvements
Land
Building
Copyright © 2011 John Wiley & Sons, Inc.
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(For Instructor Use Only)
EXERCISE 9-3
(a) Cost of land
Cash paid .................................................................................
Net cost of removing warehouse
(€8,600 – €1,700) ................................................................
Attorney’s fee .........................................................................
Real estate broker’s fee ......................................................
Total ..................................................................................
€80,000
6,900
1,100
5,000
€93,000
(b) The architect’s fee (€7,800) should be debited to the Building account.
The cost of the driveways and parking lot (€14,000) should be debited
to Land Improvements.
EXERCISE 9-4
1. False. Depreciation is a process of cost allocation, not asset valuation.
2. True.
3. False. The book value of a plant asset may be quite different from its
fair value.
4. False. Depreciation applies to three classes of plant assets: land improvements, buildings, and equipment.
5. False. Depreciation does not apply to land because its usefulness and
revenue-producing ability generally remain intact over time.
6. True.
7. False. Recognizing depreciation on an asset does not result in an accumulation of cash for replacement of the asset.
8. True.
9. False. Depreciation expense is reported on the income statement, and
accumulated depreciation is reported as a deduction from plant assets on
the statement of financial position.
10. False. Three factors affect the computation of depreciation: cost, useful
life, and residual value (also called salvage value).
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9-19
EXERCISE 9-5
(a) Depreciation cost per unit is R$1.60 per mile
[(R$168,000 – R$8,000) ÷ 100,000].
(b)
Computation
Year
2011
2012
2013
2014
End of Year
Annual
Units of Depreciation Depreciation Accumulated
Book
Activity X Cost /Unit = Expense
Depreciation
Value
26,000
R$1.60
R$41,600
R$ 41,600
R$126,400
32,000
1.60
51,200
92,800
75,200
25,000
1.60
40,000
132,800
35,200
17,000
1.60
27,200
160,000
8,000
EXERCISE 9-6
(a) Straight-line method:
 $120,000 – $12,000 
 = $21,600 per year.

5
2011 depreciation = $21,600 X 3/12 = $5,400.
(b) Units-of-activity method:
 $120,000 – $12,000 

 = $10.80 per hour.
10,000


2011 depreciation = 1,700 hours X $10.80 = $18,360.
(c) Declining-balance method:
2011 depreciation
= $120,000 X 40% X 3/12 = $ 12,000.
Book value January 1, 2012 = $120,000 – $12,000
= $108,000.
2012 depreciation
= $108,000 X 40%
= $ 43,200.
9-20
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
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EXERCISE 9-7
(a) (1)
2011: (R$30,000 – R$2,000)/8 = R$3,500
2012: (R$30,000 – R$2,000)/8 = R$3,500
(2)
(R$30,000 – R$2,000)/100,000 = R$0.28 per mile
2011: 15,000 X R$0.28 = R$4,200
2012: 12,000 X R$0.28 = R$3,360
(3)
2011: R$30,000 X 25% = R$7,500
2012: (R$30,000 – R$7,500) X 25% = R$5,625
(b) (1)
(2)
Depreciation Expense..................................................
Accumulated Depreciation—Delivery Truck........
Delivery Truck ................................................................
Less: Accumulated Depreciation............................
3,500
3,500
R$30,000
3,500
R$26,500
EXERCISE 9-8
Building depreciation:
$1,920,000*/40 years = $ 48,000
Personal property depreciation: $300,000/5 years
=
60,000
Land improvements depreciation: $180,000/10 years = 18,000
Total component depreciation
$126,000
*$2,400,000 – $300,000 – $180,000 = $1,920,000
EXERCISE 9-9
(a) Type of Asset
Building
Warehouse
(a)
$686,000
37,000
$649,000
$75,000
3,600
$71,400
Remaining useful life in years (b)
44
15
$ 14,750
$ 4,760
Book value, 1/1/11
Less: Residual value
Depreciable cost
Revised annual depreciation
(a) ÷ (b)
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9-21
EXERCISE 9-9 (Continued)
(b) Dec. 31
Depreciation Expense—Building...............
Accumulated Depreciation—
Building.................................................
14,750
14,750
EXERCISE 9-10
(a)
Depreciation Expense........................................................
Accumulated Depreciation—Plant Assets..........
(To record depreciation expense)
70,000
(b) Accumulated Depreciation—Plant Assets..................
Plant Assets..................................................................
Revaluation Surplus...................................................
(To adjust the plant assets to fair value and
record revaluation surplus)
70,000
(c)
80,000*
70,000
30,000
40,000
Depreciation Expense........................................................
Accumulated Depreciation—Plant Assets..........
(To record depreciation expense)
80,000
*$350,000 – $30,000 = $320,000; $320,000/4 years = $80,000
EXERCISE 9-11
Jan.
1
June 30
30
9-22
Accumulated Depreciation—Machinery ..........
Machinery..........................................................
62,000
Depreciation Expense............................................
Accumulated Depreciation—Computer
(£40,000 X 1/5 X 6/12) ................................
4,000
Cash .............................................................................
Accumulated Depreciation—Computer
(£40,000 X 3/5 = £24,000;
£24,000 + £4,000)......................................................
Gain on Disposal
[£14,000 – (£40,000 – £28,000)] ..............
Computer...........................................................
14,000
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62,000
4,000
28,000
Weygandt, IFRS, 1/e, Solutions Manual
2,000
40,000
(For Instructor Use Only)
EXERCISE 9-11 (Continued)
Dec. 31
31
Depreciation Expense ...........................................
Accumulated Depreciation—Truck
[(£39,000 – £3,000) X 1/6].........................
6,000
Loss on Disposal ....................................................
Accumulated Depreciation—Truck
[(£39,000 – £3,000) X 5/6]..................................
Delivery Truck .................................................
9,000
6,000
30,000
39,000
EXERCISE 9-12
(a)
(b)
(c)
Cash......................................................................................
Accumulated Depreciation—Equipment
[($50,000 – $5,000) X 3/5] ..........................................
Equipment.................................................................
Gain on Disposal ....................................................
28,000
27,000
Depreciation Expense
[($50,000 – $5,000) X 1/5 X 4/12] ..............................
Accumulated Depreciation—Equipment........
3,000
50,000
5,000
3,000
Cash......................................................................................
Accumulated Depreciation—Equipment
($27,000 + $3,000).........................................................
Equipment................................................................
Gain on Disposal ...................................................
28,000
Cash ........................................................................................
Accumulated Depreciation—Equipment.....................
Loss on Disposal ................................................................
Equipment.....................................................................
11,000
27,000
12,000
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30,000
50,000
8,000
(For Instructor Use Only)
50,000
9-23
EXERCISE 9-12 (Continued)
(d) Depreciation Expense
[($50,000 – $5,000) ÷ 5 X 9/12] .....................................
Accumulated Depreciation—Equipment .............
Cash.........................................................................................
Accumulated Depreciation—Equipment
($27,000 + $6,750)............................................................
Loss on Disposal.................................................................
Equipment .....................................................................
6,750
6,750
11,000
33,750
5,250
50,000
EXERCISE 9-13
(a) Dec. 31
Depletion Expense..........................................
Accumulated Depletion
(100,000 X CHF.90) ............................
Cost
Units estimated
Depletion cost per unit [(a) ÷ (b)]
90,000
90,000
(a) CHF720,000
(b) 800,000 tons
CHF.90
(b) The costs pertaining to the unsold units are reported in current assets as
part of inventory (20,000 X CHF.90 = CHF18,000).
EXERCISE 9-14
Dec. 31
Amortization Expense—Patent .......................
Patents ($90,000 ÷ 5 X 8/12).....................
12,000
12,000
Note: No entry is made to amortize goodwill because it has an indefinite life.
9-24
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EXERCISE 9-15
1/2/11
4/1/11
7/1/11
9/1/11
11/1/11
Patents ....................................................................
Cash ................................................................
560,000
Goodwill..................................................................
Cash ................................................................
(Part of the entry to record
purchase of another company)
360,000
Franchise................................................................
Cash ................................................................
440,000
Research Expense ..............................................
Cash ................................................................
185,000
Development Expense .......................................
Cash ................................................................
225,000
12/31/11 Amortization Expense—Patent
($560,000 ÷ 7) ....................................................
Amortization Expense—Franchise
[($440,000 ÷ 10) X 1/2] ....................................
Patents.......................................................
Franchise ..................................................
560,000
360,000
440,000
185,000
225,000
80,000
22,000
80,000
22,000
Ending balances, 12/31/11:
Patent = $480,000 ($560,000 – $80,000).
Goodwill = $360,000
Franchise = $418,000 ($440,000 – $22,000).
EXERCISE 9-16
Asset turnover ratio =
$4,900,000
= 3.5 times
$1,400,000
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9-25
*EXERCISE 9-17
(a) Trucks (new)..........................................................................
Accumulated Depreciation—Trucks (old) ...................
Loss on Disposal .................................................................
Trucks (old)...................................................................
Cash ................................................................................
Cost of old trucks
Less: Accumulated depreciation
Book value
Fair value of old trucks
Loss on disposal
£64,000
22,000
42,000
36,000
£ 6,000
Fair value of old trucks
Cash paid
Cost of new trucks
£36,000
17,000
£53,000
(b) Machine (new).......................................................................
Accumulated Depreciation—Machine (old) ................
Gain on Disposal ........................................................
Machine (old)................................................................
Cash ................................................................................
Cost of old machine
Less: Accumulated depreciation
Book value
Fair value of old
machine
Gain on disposal
Fair value of old
machine
Cash paid
Cost of new machine
9-26
Copyright © 2011 John Wiley & Sons, Inc.
53,000
22,000
6,000
64,000
17,000
12,000
4,000
1,000
12,000
3,000
£12,000
4,000
8,000
9,000
£ 1,000
£ 9,000
3,000
£12,000
Weygandt, IFRS, 1/e, Solutions Manual
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*EXERCISE 9-18
(a) Delivery Truck (new) ..........................................................
Loss on Disposal.................................................................
Accumulated Depreciation—Delivery
Truck (old).........................................................................
Delivery Truck (old) ...................................................
Cost of old truck
Less: Accumulated depreciation
Book value
Fair value of old truck
Loss on disposal
4,000
3,000
15,000
22,000
$22,000
15,000
7,000
4,000
$ 3,000
(b) Delivery Truck (new) ..........................................................
Accumulated Depreciation—Delivery
Trucks (old).......................................................................
Delivery Truck (old) ...................................................
Gain on Disposal ........................................................
Cost of old truck
Less: Accumulated depreciation
Book value
Fair value of old truck
Gain on Disposal
$10,000
8,000
2,000
4,000
$ 2,000
Cost of new delivery truck*
$ 4,000
4,000
8,000
10,000
2,000
*Fair value of old truck
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9-27
SOLUTIONS TO PROBLEMS
PROBLEM 9-1A
Item
1
2
3
4
5
6
7
8
9
10
9-28
Land
€
Building
Other Accounts
4,000)
€700,000
€ 5,000
Property Taxes Expense
( 145,000)
35,000
10,000
(
2,000)
14,000
15,000)
(3,500)
(€162,500)
Land Improvements
(
€745,000
Copyright © 2011 John Wiley & Sons, Inc.
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PROBLEM 9-2A
(a)
Year
Computation
Accumulated
Depreciation
12/31
2009
2010
2011
BUS 1
$ 90,000 X 20% = $18,000
$ 90,000 X 20% = $18,000
$ 90,000 X 20% = $18,000
$ 18,000
36,000
54,000
2009
2010
2011
BUS 2
$120,000 X 50% = $60,000
$ 60,000 X 50% = $30,000
$ 30,000 X 50% = $15,000
$ 60,000
90,000
105,000
2010
2011
BUS 3
24,000 miles X $.60* = $14,400
34,000 miles X $.60* = $20,400
$ 14,400
34,800
*$72,000 ÷ 120,000 miles = $.60 per mile.
(b)
Year
Computation
Expense
1.
2009
BUS 2
$120,000 X 50% X 9/12 = $45,000
$45,000
2.
2010
$75,000 X 50% = $37,500
$37,500
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9-29
PROBLEM 9-3A
(a) 1.
Purchase price..........................................................................
Sales tax .....................................................................................
Shipping costs..........................................................................
Insurance during shipping ...................................................
Installation and testing ..........................................................
Total cost of machine....................................................
Machine..........................................................................
Cash .......................................................................
2.
40,000
40,000
Recorded cost...........................................................................
Less: Residual value .............................................................
Depreciable cost ......................................................................
Years of useful life...................................................................
Annual depreciation.......................................................
Depreciation Expense ...............................................
Accumulated Depreciation .............................
(b) 1.
Year
2011
2012
2013
2014
Book Value at
Beginning of
Year
R$160,000
80,000
40,000
20,000
DDB Rate
*50%*
*50%*
*50%*
*50%*
Annual
Depreciation
Expense
R$80,000
40,000
20,000
10,000
R$ 40,000
5,000
R$ 35,000
÷
5
R$ 7,000
7,000
7,000
Recorded cost...........................................................................
Less: Residual value .............................................................
Depreciable cost ......................................................................
Years of useful life...................................................................
Annual depreciation.......................................................
2.
R$ 38,000
1,700
150
80
70
R$ 40,000
160,000
10,000
R$150,000
÷
4
R$ 37,500
Accumulated
Depreciation
R$ 80,000
120,000
140,000
150,000
**100% ÷ 4-year useful life = 25% X 2 = 50%.
9-30
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PROBLEM 9-3A (Continued)
3.
Depreciation cost per unit = (R$160,000 – R$10,000)/125,000 units =
R$1.20 per unit.
Annual Depreciation Expense
2011: R$1.20 X 45,000 = R$54,000
2012:
1.20 X 35,000 =
42,000
2013:
1.20 X 25,000 =
30,000
2014:
1.20 X 20,000 =
24,000
(c) The declining-balance method reports the highest amount of depreciation
expense the first year while the straight-line method reports the lowest.
In the fourth year, the straight-line method reports the highest amount of
depreciation expense while the declining-balance method reports the
lowest.
These facts occur because the declining-balance method is an accelerated depreciation method in which the largest amount of depreciation
is recognized in the early years of the asset’s life. If the straight-line
method is used, the same amount of depreciation expense is recognized
each year. Therefore, in the early years less depreciation expense will be
recognized under this method than under the declining-balance method
while more will be recognized in the later years.
The amount of depreciation expense recognized using the units-of-activity
method is dependent on production, so this method could recognize more
or less depreciation expense than the other two methods in any year
depending on output.
No matter which of the three methods is used, the same total amount
of depreciation expense will be recognized over the four-year period.
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9-31
PROBLEM 9-4A
Year
2009
2010
2011
2012
2013
2014
2015
Depreciation
Expense
(b)
$13,500(a)
13,500
(b)
10,800(b)
10,800
10,800
12,800(c)
12,800
Accumulated
Depreciation
$13,500
27,000
37,800
48,600
59,400
72,200
85,000
(a)
$90,000 – $9,000
= $13,500
6 years
(b)
Book value – Residual value $63,000 – $9,000
=
= $10,800
5 years
Remaining useful life
(c)
$30,600 – $5,000
= $12,800
2 years
9-32
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PROBLEM 9-5A
(a) Apr. 1
May
1
1
Land ..........................................................
Cash .................................................
2,130,000
Depreciation Expense .........................
Accumulated Depreciation—
Equipment
(€780,000 X 1/10 X 4/12).........
26,000
Cash ..........................................................
Accumulated Depreciation—
Equipment ..........................................
Equipment......................................
Gain on Disposal .........................
450,000
2,130,000
26,000
338,000
780,000
8,000
Cost
€780,000
Accum. depreciation—
equipment
338,000
[(€780,000 X 1/10 X 4) +
€26,000]
Book value
442,000
Cash proceeds
450,000
Gain on disposal
€ 8,000
June 1
July 1
Dec. 31
31
Cash ..........................................................
Land .................................................
Gain on Disposal .........................
1,500,000
Equipment...............................................
Cash .................................................
2,000,000
Depreciation Expense .........................
Accumulated Depreciation—
Equipment
(€500,000 X 1/10)......................
50,000
Accumulated Depreciation—
Equipment ..........................................
Equipment......................................
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400,000
1,100,000
2,000,000
50,000
500,000
500,000
(For Instructor Use Only)
9-33
PROBLEM 9-5A (Continued)
Cost
€500,000
Accum. depreciation—
equipment
500,000
(€500,000 X 1/10 X 10)
Book value
€
0
(b) Dec. 31
31
Depreciation Expense ........................
Accumulated Depreciation—
Buildings ...................................
(€28,500,000 X 1/50)
570,000
Depreciation Expense ........................
Accumulated Depreciation—
Equipment.................................
4,772,000
570,000
4,772,000
(€46,720,000* X 1/10)
€4,672,000
[(€2,000,000 X 1/10) X 6/12]
100,000
€4,772,000
*(€48,000,000 – €780,000 – €500,000)
(c)
JIMENEZ COMPANY
Partial Statement of Financial Position
December 31, 2012
Plant Assets*
Land ..............................................................
Buildings .....................................................
Less: Accumulated depreciation—
buildings ........................................
Equipment...................................................
Less: Accumulated depreciation—
equipment......................................
Total......................................................
€ 5,730,000
€28,500,000
12,670,000
48,720,000
15,830,000
9,010,000
39,710,000
€61,270,000
*See T-accounts which follow.
9-34
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PROBLEM 9-5A (Continued)
Bal.
Apr. 1
Bal.
Land
4,000,000 June 1
2,130,000
5,730,000
400,000
Buildings
28,500,000
28,500,000
Bal.
Bal.
Accumulated Depreciation—Buildings
Bal.
12,100,000
Dec. 31 adj.
570,000
Bal.
12,670,000
Bal.
July 1
Bal.
Equipment
48,000,000 May 1
2,000,000 Dec. 31
48,720,000
780,000
500,000
Accumulated Depreciation—Equipment
May 1
338,000 Bal.
5,000,000
Dec. 31
500,000 May 1
26,000
Dec. 31
50,000
Dec. 31 adj. 4,772,000
Bal.
9,010,000
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9-35
PROBLEM 9-6A
(a) Accumulated Depreciation—Office
Furniture.............................................................................
Loss on Disposal .................................................................
Office Furniture ...........................................................
50,000
25,000
75,000
(b) Cash .........................................................................................
Accumulated Depreciation—Office
Furniture.............................................................................
Loss on Disposal .................................................................
Office Furniture ...........................................................
21,000
(c) Cash .........................................................................................
Accumulated Depreciation—Office
Furniture.............................................................................
Gain on Disposal ........................................................
Office Furniture ...........................................................
31,000
9-36
Copyright © 2011 John Wiley & Sons, Inc.
50,000
4,000
75,000
50,000
Weygandt, IFRS, 1/e, Solutions Manual
6,000
75,000
(For Instructor Use Only)
PROBLEM 9-7A
(a) Jan. 2
Jan.–
June
45,000
45,000
Research
Expense......................................................... 140,000
Cash ...........................................................
Sept. 1
Oct.
Patents ...............................................................
Cash ...........................................................
1
(b) Dec. 31
31
Advertising Expense .....................................
Cash ...........................................................
140,000
50,000
50,000
Franchise........................................................... 100,000
Cash ...........................................................
Amortization Expense—Patents................
Patents ......................................................
[($70,000 X 1/10) + ($45,000 X 1/9)]
12,000
Amortization Expense—Franchise ...........
Franchise..................................................
[($48,000 X 1/10) +
($100,000 X 1/50 X 3/12)]
5,300
100,000
12,000
(c) Intangible Assets
Patents ($115,000 cost – $19,000 amortization) (1) ................
Franchise ($148,000 cost – $24,500 amortization) (2)............
Total intangible assets ............................................................
5,300
$ 96,000
123,500
$219,500
(1) Cost ($70,000 + $45,000); amortization ($7,000 + $12,000).
(2) Cost ($48,000 + $100,000); amortization ($19,200 + $5,300).
Copyright © 2011 John Wiley & Sons, Inc.
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(For Instructor Use Only)
9-37
PROBLEM 9-8A
1.
2.
Research Expense ..........................................................
Development Expense ...................................................
Patents .......................................................................
86,000
50,000
Patents ................................................................................
Amortization Expense—Patents
[$9,800 – ($60,000 X 1/20)]...............................
6,800
Goodwill..............................................................................
Amortization Expense—Goodwill .....................
920
136,000
6,800
920
Note: Goodwill should not be amortized because it has an indefinite life unlike
Patents.
9-38
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 9-9A
(a)
Asset turnover
ratio
Luó
Zhào
HK$1,200,000
= .48 times
HK$2,500,000
HK$1,080,000
= .54 times
HK$2,000,000
(b) Based on the asset turnover ratio, Zhào is more effective in using assets
to generate sales. Its asset turnover ratio is almost 13% higher than Luó’s
ratio.
Copyright © 2011 John Wiley & Sons, Inc.
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(For Instructor Use Only)
9-39
PROBLEM 9-1B
Item
1
2
3
4
5
6
7
8
9
10
9-40
Land
($
Building
Other Accounts
5,000)
$ 7,500
Property Taxes Expense
$500,000
19,000
100,000
18,000
Land Improvements
6,000
Land Improvements
9,000
( 17,000)
( (3,500)
($118,500)
$528,000
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 9-2B
(a)
Accumulated
Depreciation
12/31
Year
Computation
2009
2010
2011
MACHINE 1
¥100,000 X 10% = ¥10,000
¥100,000 X 10% = ¥10,000
¥100,000 X 10% = ¥10,000
¥10,000
20,000
30,000
2009
2010
2011
MACHINE 2
¥150,000 X 25% = ¥37,500
¥112,500 X 25% = ¥28,125
¥ 84,375 X 25% = ¥21,094
¥37,500
65,625
86,719
2011
MACHINE 3
2,000 X (¥85,000 ÷ 25,000) = ¥6,800
¥ 6,800
(b)
Year
Depreciation Computation
Expense
1.
2009
MACHINE 2
¥150,000 X 25% X 8/12 = ¥25,000
¥25,000
2.
2010
¥125,000 X 25% = ¥31,250
¥31,250
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Weygandt, IFRS, 1/e, Solutions Manual
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9-41
PROBLEM 9-3B
(a) 1.
Purchase price..............................................................................
Sales tax .........................................................................................
Shipping costs..............................................................................
Insurance during shipping .......................................................
Installation and testing ..............................................................
Total cost of machine........................................................
Machine..........................................................................
Cash .......................................................................
2.
(b) 1.
58,000
58,000
Recorded cost...............................................................................
Less: Residual value .................................................................
Depreciable cost ..........................................................................
Years of useful life.......................................................................
Annual depreciation...........................................................
Depreciation Expense ...............................................
Accumulated Depreciation .............................
Year
2011
2012
2013
2014
Book Value at
Beginning of
Year
$100,000
50,000
25,000
12,500
DDB Rate
*50%*
*50%*
*50%*
*50%*
$ 58,000
5,000
$ 53,000
÷
4
$ 13,250
13,250
13,250
Recorded cost...............................................................................
Less: Residual value .................................................................
Depreciable cost ..........................................................................
Years of useful life.......................................................................
Annual depreciation...........................................................
2.
$ 55,000
2,750
100
75
75
$ 58,000
Annual
Depreciation
Expense
$50,000
25,000
12,500
2,500**
$100,000
10,000
$90,000
÷
4
$ 22,500
Accumulated
Depreciation
$50,000
75,000
87,500
90,000
*100% ÷ 4-year useful life = 25% X 2 = 50%.
**$12,500 – $10,000 = $2,500.
9-42
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(For Instructor Use Only)
PROBLEM 9-3B (Continued)
3.
Depreciation cost per unit = ($100,000 – $10,000)/25,000 units =
$3.60 per unit.
Annual Depreciation Expense
2011:
2012:
2013:
2014:
$3.60 X 5,500 = $19,800
3.60 X 7,000 = 25,200
3.60 X 8,000 = 28,800
3.60 X 4,500 = 16,200
(c) The units-of-activity method reports the lowest amount of depreciation
expense the first year while the declining-balance method reports the
highest. In the fourth year, the declining-balance method reports the
lowest amount of depreciation expense while the straight-line method
reports the highest.
These facts occur because the declining-balance method is an accelerated
depreciation method in which the largest amount of depreciation is
recognized in the early years of the asset’s life. If the straight-line method
is used, the same amount of depreciation expense is recognized each
year. Therefore, in the early years less depreciation expense will be
recognized under this method than under the declining-balance method
while more will be recognized in the later years.
The amount of depreciation expense recognized using the units-of-activity
method is dependent on production, so this method could recognize more
or less depreciation expense than the other two methods in any year
depending on output.
No matter which of the three methods is used, the same total amount
of depreciation expense will be recognized over the four-year period.
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9-43
PROBLEM 9-4B
Year
2009
2010
2011
2012
2013
2014
2015
Depreciation
Expense
£30,000(a)
30,000
24,000(b)
24,000
24,000
31,500(c)
31,500
Accumulated
Depreciation
£ 30,000
60,000
84,000
108,000
132,000
163,500
195,000
(a)
£ 200,000 – £ 20,000
= £30,000
6 years
(b)
£140,000 – £ 20,000
Book value – Residual value
=
= £24,000
5 years
Remaining useful life
(c)
£ 68,000 – £ 5,000
= £31,500
2 years
9-44
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(For Instructor Use Only)
PROBLEM 9-5B
(a) Apr. 1
May
1
1
Land ..........................................................
Cash .................................................
1,200,000
Depreciation Expense .........................
Accumulated Depreciation—
Equipment .................................
($420,000 X 1/10 X 4/12) ........
14,000
Cash ..........................................................
Accumulated Depreciation—
Equipment ..........................................
Equipment......................................
Gain on Disposal .........................
240,000
Cost
Accum. depreciation—
equipment
1,200,000
14,000
182,000
420,000
2,000
$420,000
182,000
[($420,000 X 1/10 X 4) + $14,000]
Book value
Cash proceeds
Gain on disposal
June 1
July 1
Dec. 31
31
238,000
240,000
$ 2,000
Cash ..........................................................
Land .................................................
Gain on Disposal .........................
1,000,000
Equipment...............................................
Cash .................................................
1,100,000
Depreciation Expense .........................
Accumulated Depreciation—
Equipment
($300,000 X 1/10)......................
30,000
Accumulated Depreciation—
Equipment ..........................................
Equipment......................................
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340,000
660,000
1,100,000
30,000
300,000
300,000
(For Instructor Use Only)
9-45
PROBLEM 9-5B (Continued)
Cost
Accum. depreciation—
equipment
$300,000
300,000
($300,000 X 1/10 X 10)
Book value
(b) Dec. 31
31
$
0
Depreciation Expense ........................
Accumulated Depreciation—
Buildings
($20,000,000 X 1/50) ...............
400,000
Depreciation Expense ........................
Accumulated Depreciation—
Equipment.................................
2,983,000
400,000
2,983,000
($29,280,000* X 1/10)
$2,928,000
[($1,100,000 X 1/10) X 6/12]
55,000
$2,983,000
*($30,000,000 – $420,000 – $300,000)
(c)
STARKEY COMPANY
Partial Statement of Financial Position
December 31, 2012
Plant Assets*
Land ..............................................................
Buildings .....................................................
Less: Accumulated depreciation—
buildings ........................................
Equipment...................................................
Less: Accumulated depreciation—
equipment......................................
Total......................................................
$ 2,860,000
$20,000,000
8,400,000
30,380,000
11,600,000
6,545,000
23,835,000
$38,295,000
*See T-accounts which follow.
9-46
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(For Instructor Use Only)
PROBLEM 9-5B (Continued)
Bal.
Apr. 1
Bal.
Land
2,000,000 June 1
1,200,000
2,860,000
340,000
Buildings
20,000,000
20,000,000
Bal.
Bal.
Accumulated Depreciation—Buildings
Bal.
8,000,000
Dec. 31 adj.
400,000
Bal.
8,400,000
Bal.
July 1
Bal.
Equipment
30,000,000 May 1
1,100,000 Dec. 31
30,380,000
420,000
300,000
Accumulated Depreciation—Equipment
May 1
182,000 Bal.
4,000,000
Dec. 31
300,000 May 1
14,000
Dec. 31
30,000
Dec. 31 adj. 2,983,000
Bal.
6,545,000
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(For Instructor Use Only)
9-47
PROBLEM 9-6B
(a) Accumulated Depreciation—Delivery
Equipment .........................................................................
Loss on Disposal.................................................................
Delivery Equipment....................................................
26,000
14,000
40,000
(b) Cash .........................................................................................
Accumulated Depreciation—Delivery
Equipment .........................................................................
Gain on Disposal ........................................................
Delivery Equipment....................................................
29,000
(c) Cash .........................................................................................
Accumulated Depreciation—Delivery
Equipment .........................................................................
Loss on Disposal .................................................................
Delivery Equipment....................................................
10,000
9-48
Copyright © 2011 John Wiley & Sons, Inc.
26,000
15,000
40,000
26,000
4,000
Weygandt, IFRS, 1/e, Solutions Manual
40,000
(For Instructor Use Only)
PROBLEM 9-7B
(a) Jan. 2
Jan.–
June
Research
Expense......................................................
Cash ........................................................
Sept. 1
Oct.
Patents ............................................................
Cash ........................................................
1
(b) Dec. 31
31
45,000
45,000
230,000
230,000
Advertising Expense ..................................
Cash ........................................................
125,000
Copyright........................................................
Cash ........................................................
200,000
Amortization Expense—Patents.............
Patents ...................................................
[($100,000 X 1/10) + ($45,000 X 1/9)]
15,000
Amortization Expense—Copyright ........
Copyright...............................................
[($60,000 X 1/10) +
($200,000 X 1/50 X 3/12)]
7,000
125,000
200,000
15,000
(c) Intangible Assets
Patents ($145,000 cost – $25,000 amortization) (1) ................
Copyright ($260,000 cost – $31,000 amortization) (2)............
Total intangible assets ............................................................
7,000
$120,000
229,000
$349,000
(1) Cost ($100,000 + $45,000); amortization ($10,000 + $15,000).
(2) Cost ($60,000 + $200,000); amortization ($24,000 + $7,000).
(d) The intangible assets of the company consist of two patents and two
copyrights. One patent with a total cost of $145,000 is being amortized
in two segments ($100,000 over 10 years and $45,000 over 9 years); the
other patent was obtained at no recordable cost. A copyright with a cost
of $60,000 is being amortized over 10 years; the other copyright with a
cost of $200,000 is being amortized over 50 years.
Copyright © 2011 John Wiley & Sons, Inc.
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(For Instructor Use Only)
9-49
PROBLEM 9-8B
1.
2.
Development Expense .......................................................
Patents ...........................................................................
110,000
Patents ....................................................................................
Amortization Expense—Patents
[TL8,000 – (TL50,000 X 1/20)] .............................
5,500
Goodwill..................................................................................
Amortization Expense—Goodwill .........................
2,000
110,000
5,500
2,000
Note: Goodwill should not be amortized because it has an indefinite life unlike
Patents.
9-50
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
PROBLEM 9-9B
(a)
Asset turnover ratio
McLead Corp.
Gene Corp.
$1,100,000
= 1.10 times
$1,000,000
$990,000
= .94 times
$1,050,000
(b) Based on the asset turnover ratio, McLead Corp. is more effective in using
assets to generate sales. Its asset turnover ratio is 17% higher than
Gene’s asset turnover ratio.
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(For Instructor Use Only)
9-51
CHAPTER 9 COMPREHENSIVE PROBLEM SOLUTION
(a) 1. Equipment ............................................................................... 16,800
Cash ...................................................................................
2. Depreciation Expense—Equipment................................
Accumulated Depreciation—Equipment................
450
Cash ..........................................................................................
Accumulated Depreciation—Equipment.......................
Equipment........................................................................
Gain on Disposal [$3,500 – ($5,000 – $2,250)]......
3,500
2,250
3. Accounts Receivable...........................................................
Sales...................................................................................
5,000
Cost of Goods Sold..............................................................
Merchandise Inventory ................................................
3,500
4. Bad Debts Expense ($4,000 – $500) ...............................
Allowance for Doubtful Accounts ............................
3,500
5. Interest Receivable ($10,000 X .08 X 9/12)....................
Interest Revenue ............................................................
600
6. Insurance Expense ($3,600 X 4/6) ...................................
Prepaid Insurance .........................................................
2,400
7. Depreciation Expense—Building ....................................
Accumulated Depreciation—Building
[($150,000 – $30,000) ÷ 30]..........................................
4,000
8. Depreciation Expense—Equipment................................
Accumulated Depreciation—Equipment
[($55,000 – $5,500) ÷ 5] .............................................
9,900
9. Depreciation Expense—Equipment................................
Accumulated Depreciation—Equipment
[($16,800 – $1,800) ÷ 5] X 8/12 ................................
2,000
9-52
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
16,800
450
5,000
750
5,000
3,500
3,500
600
2,400
4,000
9,900
2,000
(For Instructor Use Only)
COMPREHENSIVE PROBLEM (Continued)
10. Amortization Expense—Patents ($9,000 ÷ 9).......
Patent ..........................................................................
1,000
11. Salaries Expense ............................................................
Salaries Payable ......................................................
2,200
12. Unearned Rent ($6,000 X 1/3) .....................................
Rent Revenue ...........................................................
2,000
13. Interest Expense.............................................................
Interest Payable
[($11,000 + $35,000) X .10] ................................
4,600
14. Income Tax Expense .....................................................
Income Tax Payable ...............................................
15,000
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
1,000
2,200
2,000
4,600
(For Instructor Use Only)
15,000
9-53
COMPREHENSIVE PROBLEM (Continued)
(b)
PINKERTON CORPORATION
Trial Balance
December 31, 2011
Debits
$ 14,700
41,800
10,000
600
32,700
1,200
20,000
150,000
71,800
8,000
Cash.............................................................................
Accounts Receivable .............................................
Notes Receivable.....................................................
Interest Receivable .................................................
Merchandise Inventory..........................................
Prepaid Insurance...................................................
Land.............................................................................
Building ......................................................................
Equipment .................................................................
Patent ..........................................................................
Allowance for Doubtful Accounts .....................
Accumulated Depreciation—Building..............
Accumulated Depreciation—Equipment .........
Accounts Payable ...................................................
Salaries Payable ......................................................
Unearned Rent .........................................................
Notes Payable (short-term)..................................
Interest Payable .......................................................
Notes Payable (long-term)....................................
Income Tax Payable ...............................................
Share Capital—Ordinary .......................................
Retained Earnings ..................................................
Dividends ...................................................................
12,000
Sales ............................................................................
Interest Revenue .....................................................
Rent Revenue ...........................................................
Gain on Disposal .....................................................
Bad Debts Expense ................................................
3,500
Cost of Goods Sold ................................................
633,500
Depreciation Expense—Building.......................
4,000
Depreciation Expense—Equipment ..................
12,350
Insurance Expense .................................................
2,400
Interest Expense......................................................
4,600
Other Operating Expenses...................................
61,800
Amortization Expense—Patents ........................
1,000
Salaries Expense.....................................................
112,200
Income Tax Expense..............................................
15,000
Total .................................................................... $1,213,150
9-54
Copyright © 2011 John Wiley & Sons, Inc.
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Credits
$
4,000
54,000
34,100
27,300
2,200
4,000
11,000
4,600
35,000
15,000
50,000
63,600
905,000
600
2,000
750
$1,213,150
(For Instructor Use Only)
COMPREHENSIVE PROBLEM (Continued)
(c)
PINKERTON CORPORATION
Income Statement
For the Year Ended December 31, 2011
Sales..................................................................
Cost of goods sold .......................................
Gross profit.....................................................
Operating expenses
Salaries expense......................................
Other operating expenses ....................
Depreciation expense—equipment......
Depreciation expense—building ........
Bad debts expense..................................
Insurance expense ..................................
Amortization expense—patents..........
Total operating expenses...........................
Income from operations .............................
Other income and expense
Rent income ...............................................
Gain on disposal ......................................
Interest revenue........................................
Interest expense............................................
Income before income taxes.....................
Income tax expense .....................................
Net income ......................................................
$905,000
633,500
271,500
$112,200
61,800
12,350
4,000
3,500
2,400
1,000
197,250
74,250
2,000
750
600
3,350
4,600
73,000
15,000
$ 58,000
PINKERTON CORPORATION
Retained Earnings Statement
For the Year Ending December 31, 2011
Retained earnings, 1/1/11...................................................
Add: Net income .................................................................
Less: Dividends....................................................................
Retained earnings, 12/31/11 ..............................................
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
$ 63,600
58,000
121,600
12,000
$109,600
(For Instructor Use Only)
9-55
COMPREHENSIVE PROBLEM (Continued)
(d)
PINKERTON CORPORATION
Statement of Financial Position
December 31, 2011
Property, plant, and equipment
$ 20,000
Land ......................................................................
Building ............................................................... $150,000
96,000
Less: Accum. depr.—building ....................
54,000
71,800
Equipment...........................................................
34,100
37,700
Less: Accum. depr.—equipment ...............
Intangible assets
Patent ...................................................................
Current assets
1,200
Prepaid insurance ............................................
32,700
Merchandise inventory...................................
600
Interest receivable............................................
10,000
Notes receivable ...............................................
41,800
Accounts receivable........................................
4,000
37,800
Less: Allowance for doubtful accounts......
14,700
Cash......................................................................
Total assets ...............................................................
Equity
Share capital—ordinary .................................
Retained earnings ............................................
Non-current liabilities
Notes payable (long-term).............................
Current liabilities
Notes payable (short-term) ...........................
Accounts payable.............................................
Income tax payable..........................................
Interest payable ................................................
Unearned rent....................................................
Salaries payable................................................
Total equity and liabilities ....................................
9-56
Copyright © 2011 John Wiley & Sons, Inc.
$ 50,000
109,600
$153,700
8,000
97,000
$258,700
$159,600
35,000
11,000
27,300
15,000
4,600
4,000
2,200
Weygandt, IFRS, 1/e, Solutions Manual
64,100
$258,700
(For Instructor Use Only)
BYP 9-1
FINANCIAL REPORTING PROBLEM
(a) Property, plant, and equipment is reported net, book value, on the
December 27, 2008, statement of financial position at £1,761,000,000.
The cost of the property, plant, and equipment is £3,330,000,000 as
shown in Note 16.
(b) Depreciation expense is calculated on a straight-line basis over an asset’s
estimated useful live. (see Note 1, item q).
(c) Depreciation expense was:
2008:
2007:
£161,000,000.
£138,000,000.
Amort: £35,000,000 in 2008
(d) Cadbury’s capital spending was:
2008:
2007:
£500,000,000.
£409,000,000.
(e) Cadbury’s statement of financial position reports £2,288,000,000 for
goodwill, £1,598,000,000 of acquisition intangibles, and £87,000,000 of
software intangibles. In Note 15, the company indicates that acquisition
intangibles consist of brands.
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(For Instructor Use Only)
9-57
BYP 9-2
COMPARATIVE ANALYSIS PROBLEM
(a)
Cadbury
Asset
turnover
ratio
Nestlé
£ 11, 338 + £ 8, 895
CHF115, 361 + CHF106, 215
= .53 times
£5,384 ÷
2
CHF109,908 ÷
= .99 times
2
(b) The asset turnover ratio measures how efficiently a company uses its
assets to generate sales. It shows the dollars of sales generated by each
dollar invested in assets. Nestlé’s asset turnover ratio (.99) was 87%
higher than Cadbury’s (.53). Therefore, it can be concluded that Nestlé was
more efficient during 2008 in utilizing assets to generate sales.
9-58
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
BYP 9-3
EXPLORING THE WEB
Answers will vary depending on the company selected.
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
9-59
BYP 9-4
DECISION MAKING ACROSS THE ORGANIZATION
(a)
Reimer Company—Straight-line method
Annual Depreciation
Building [($320,000 – $20,000) ÷ 40]......................................
Equipment [($110,000 – $10,000) ÷ 10] .................................
Total annual depreciation .........................................................
$ 7,500
10,000
$17,500
Total accumulated depreciation ($17,500 X 3)............................
$52,500
Lingo Company—Double-declining-balance method
Year
Asset
Computation
Annual
Depreciation
2009
Building
Equipment
Building
Equipment
Building
Equipment
$320,000 X 5%
$110,000 X 20%
$304,000 X 5%
$ 88,000 X 20%
$288,800 X 5%
$ 70,400 X 20%
$16,000
22,000
15,200
17,600
14,440
14,080
2010
2011
(b)
Year
2009
2010
2011
Total net
income
Accumulated
Depreciation
$38,000
32,800
28,520
$99,320
Reimer
Company
Net Income
Lingo
Company
Net Income
As Adjusted
Computations for Lingo Company
$ 84,000
88,400
90,000
$ 88,500
91,300
96,020
$68,000 + $38,000 – $17,500 = $88,500
$76,000 + $32,800 – $17,500 = $91,300
$85,000 + $28,520 – $17,500 = $96,020
$262,400
$275,820
(c) As shown above, when the two companies use the same depreciation
method, Lingo Company is more profitable than Reimer Company. When
the two companies are using different depreciation methods, Lingo
Company has more cash than Reimer Company for two reasons:
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Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
BYP 9-4 (Continued)
(1) its earnings are generating more cash than the earnings of Reimer
Company, and (2) depreciation expense has no effect on cash. Cash
generated by operations can be arrived at by adding depreciation expense
to net income. If this is done, it can be seen that Lingo Company’s operations generate more cash ($229,000 + $99,320 = $328,320) than Reimer
Company’s ($262,400 + $52,500 = $314,900). Based on the above analysis,
Mrs. Vogts should buy Lingo Company. It not only is in a better financial
position than Reimer Company, but it is also more profitable.
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
9-61
BYP 9-5
COMMUNICATION ACTIVITY
To:
Instructor
From:
Student
Re:
American Exploration Company footnote
American Exploration Company accounts for its oil and gas activities using the
successful efforts approach. Under this method, only the costs of successful
exploration are included in the cost of the extractable resource, and the
costs of unsuccessful explorations are expensed.
Depletion is determined using the units-of-activity method. Under this method,
a depletion cost per unit is computed based on the total number of units
expected to be extracted. Depletion expense for the year is determined by
multiplying the units extracted and sold by the depletion cost per unit.
9-62
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
(For Instructor Use Only)
BYP 9-6
ETHICS CASE
(a) The stakeholders in this situation are:
Dennis Harwood, president of Buster Container Company.
Shelly McGlone, controller.
The shareholders of Buster Container Company.
Potential investors in Buster Container Company.
(b) The intentional misstatement of the life of an asset or the amount of the
residual value is unethical for whatever the reason. There is nothing per
se unethical about changing the estimate either of the life of an asset or
of an asset’s residual value if the change is an attempt to better match
cost and revenues and is a better allocation of the asset’s depreciable
cost over the asset’s useful life. In this case, it appears from the
controller’s reaction that the revisions in the life are intended only to
improve earnings and, therefore, are unethical.
The fact that the competition uses a longer life on its equipment is not
necessarily relevant. The competition’s maintenance and repair policies
and activities may be different. The competition may use its equipment
fewer hours a year (e.g., one shift rather than two shifts daily) than Buster
Container Company.
(c) Income before income taxes in the year of change is increased $140,000
by implementing the president’s proposed changes.
Asset cost
Estimated residual value
Depreciable cost
Depreciation per year (1/8)
Asset cost
Estimated residual value
Depreciable cost
Depreciation taken to date ($350,000 X 2)
Remaining life in years
Depreciation per year
Copyright © 2011 John Wiley & Sons, Inc.
Weygandt, IFRS, 1/e, Solutions Manual
Old Estimates
$3,100,000
300,000
2,800,000
$ 350,000
Revised Estimates
$3,100,000
300,000
2,800,000
700,000
2,100,000
10 years
$ 210,000
(For Instructor Use Only)
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