MGAB02H3 Study Guide - Fall 2018, Comprehensive Midterm Notes - Depreciation, Amortization, Financial Statement
MGAB02H3
MIDTERM EXAM
STUDY GUIDE
Fall 2018
To account for the cost of assets, it must include all cots that are required to make the asset operational
These costs will always be expensed as the benefits are hard to measure :
1. Training
2. Advertising
Basket Purchase (Bulk Purchase)
Bought a building for $ 1,000,000
Bought a land and building for $ 1,000,000
Allocate the basket purchase based on the FMV of the assets on a stand alone basis
FMV Purchase
Land 700,000 583,333.33 $ 1,000,000 x $ 700,000/$ 1,200,
Building 500,000 416,666.67 $ 1,000,000 x $ 500,000/$ 1,200,
1,200,000 1,000,000
Land 583,333
Building 416,667
cash 1,000,000
Jason bought a house and all the furniture from his friend for $ 1,200,000. He paid also the following:
§ $ 5,000 legal fees
§ $ 2,000 land transfer tax
§ $ 20,000 to renovate the house
§ $ 3,000 for moving expenses
§ $ 600 for a cleaning lady to clean the house after he moved in
FV market value at the time of purchase:
§ Land : $ 600,000
§ Building : $ 700,000
§ Furniture : $ 100,000
Required:
Prepare all the journal entries
FMV Purchase
Land 600,000 514,285.71 $ 1,200,000 x 600/1,400
Building 700,000 600,000
Furniture 100,000 85,714
1,400,000 1,200,000
land 518,429
Building 622,500
Furniture 86,071
Cash 1,227,000
Moving expense 3,000
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Cleaning expense 600
Cash 3,600
Buy a building for $ 1,000,000 and issued common shares
Building 1,000,000
Common Shares 1,000,000
Buy a building for $ 1,000,000 and arrange a loan
Building 1,000,000
Loan Payable 1,000,000
Buying the building for $ 1,000,000 and th evendor allows credit term of 2/10, net 30
At the time of purchase:
Building 980,000 ($ 1,000,000 x 98%)
AP 980,000
Assume I paid within the discount period
AP 980,000
Cash 980,000
Assume I paid beyond the discount period
AP 980,000
Discount lost 20,000 (expense)
Cash 1,000,000
Depreciation : Car
Cost of asset 40,000
Residual/Salvage Value 10,000
Life of asset 5
Straight line method SFP:
Depreciation : (Original cost - Residual Value)/Life
($ 40,000 - $ 10,000)/5 Cost
6,000 Acc Dep
Carry Value
Depreciation expense 6,000 Net Book value
Accumulated depreciation 6,000
Accelerated Method - Double Declining Method
Depreciation rate 100%/Life
Regular declining balance method - Depreciation Rate : 100%/5 = 20%
Double declining balance method - double the rate 20% x 2 = 40%
Usingh double declining. Depreciation :
Salvage value is not deducted up front
However, you can only depreciare up to the salvage value
find more resources at oneclass.com
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Document Summary
To account for the cost of assets, it must include all cots that are required to make the asset operational. These costs will always be expensed as the benefits are hard to measure : Bought a land and building for $ 1,000,000. Allocate the basket purchase based on the fmv of the assets on a stand alone basis. Jason bought a house and all the furniture from his friend for $ 1,200,000. $ 600 for a cleaning lady to clean the house after he moved in. Fv market value at the time of purchase: Buy a building for $ 1,000,000 and issued common shares. Buy a building for $ 1,000,000 and arrange a loan. Buying the building for $ 1,000,000 and th evendor allows credit term of 2/10, net 30. Depreciation : (original cost - residual value)/life ($ 40,000 - $ 10,000)/5. Regular declining balance method - depreciation rate : Double declining balance method - double the rate.
