Question

The following assets have been recognized as items of property, plant, and equipment.

1. Headquarter office boardroom table and executive chairs

2. A landfill site

3. Wooden pallets in a warehouse

4. Forklift vehicles in a manufacturing plant

5. Stand-alone training facility for pilot training, including a flight simulator, classrooms equipped with desks, whiteboards and electronic instructional aids

Instructions

For each of the items listed:

a) Identify what specific costs are likely to be included in acquisition cost.

b) Explain whether any components of this asset should be given separate recognition, and why.

c) Suggest what should be taken into consideration in determining each component’s depreciable amount and depreciation period.

d) Suggest and explain what depreciation method might be most appropriate for each component separately identified.

Answer 1

Answer:

1. Head office boardroom table and executive chairs 2. A landfill site (a) specific costs (b) componentization (separate recognition)? - purchase price - boardroom table, executive - delivery charges chairs - assembly costs (if - table probably has a much applicable) longer useful life than the chairs - purchase price, transfer - different parts of the taxes, surveying and legal | landfill site (used portions fees vs. unused portions) - costs of any work required - any buildings on the site to prepare land and make it suitable to accept refuse. - decommissioning or restoration costs associated with the closure of the facility

3. Wooden pallets in a warehouse - purchase price - transportation charges 4. Forklift vehicles in a manufacturing plant - purchase price, including delivery costs - likely all pallets have similar useful lives and rate of depreciation - depending on how they are powered, the motor element might be recognized separately - building, flight simulator, desks, whiteboards, electronic instructional aids, land - all have different useful lives and rates of depreciation Stand-alone training - purchase price of facility, facility for pilot training, equipment, and furniture including a flight and fixtures simulator, classrooms - installation / assembly equipped with desks, costs whiteboards, and - delivery charges electronic instructional - professional fees for aids design

Large passenger aircraft used in commercial flights - purchase price - extras / changes to interior design of aircraft - costs to imprint company logo on plane - registrations - exterior shell of aircraft, interior seating, carpeting, and storage compartments, engines, electrical systems - all have different useful lives and rates of depreciation