be10-allrevised

7/28/2019 BE10-ALLrevised

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BE 10-1

$57,000 + $1,400 + $28,200 = $86,600

BE 10-2

Direct labour $73,000Material purchased for building 82,500Interest on loan to finance construction 2,300Allocation of plant overhead based on

labour hours worked on building 29,000Architectural drawings for building 7,500Total cost of new building $194,300

Note: For PP&E assets, only directly attributable costs are capitalized. The president'ssalary is a fixed cost, thus the allocation is not directly traceable and not eligible forcapitalization.

BE 10-3

(a) Purchase:Equipment ........................................................................... 40,000

Accounts Payable.................................................... 40,000

Payment:Accounts Payable ............................................................... 40,000

Equipment ................................................................ 800Cash ......................................................................... 39,200

(b) Purchase:

Equipment ........................................................................... 40,000Accounts Payable.................................................... 40,000

Payment:Accounts Payable ............................................................... 40,000

Cash ......................................................................... 40,000Finance Expense OR Discounts Lost ................................ 800

Equipment ................................................................ 800

BE 10-4

Truck ($80,000 X .63552) .................................................... 50,842Notes Payable ......................................................... 50,842

BE 10-5

Truck ................................................................................. 80,000Notes Payable ......................................................... 80,000


2/5

BE 10-6Fair Value % of Total

CostRecordedAmount

Land $ 95,000 95/455 $306,000 $ 63,890Building 250,000 250/455 $306,000 168,132Equipment 110,000 110/455 $306,000 73,978

$455,000 $306,000

BE 10-7

Land (2,000 X $41) ............................................................... 82,000Common Shares ...................................................... 82,000

BE 10-8

Truck (new) .......................................................................... 2,600Accumulated Depreciation ................................................. 20,700

Truck (old) ................................................................ 23,000Cash ......................................................................... 300**The transaction is nonmonetary because the amount of cash is not significant. Since the

transaction lacks commercial substance, no gain is recognized.

BE 10-9

Office Equipment ................................................................ 5,000Accumulated Depreciation ................................................. 3,000Loss on Disposal of Machine ............................................. 3,000

Machine .................................................................... 9,000Cash ......................................................................... 2,000

BE 10-10

Truck (new) .......................................................................... 35,000Loss on Disposal of Truck ................................................. 1,000Accumulated Depreciation ................................................. 27,000

Truck (used) ............................................................. 30,000Cash ......................................................................... 33,000

It is assumed that the amount of cash paid is significant and that the transaction ismonetary.

BE 10-11Building ............................................................................... 470,000

Cash ......................................................................... 470,000

Land Rental Expense .......................................................... 14,000Cash ......................................................................... 14,000

Cash .................................................................................. 140,000Building .................................................................... 140,000


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BE 10-12

Building ............................................................................... 470,000Cash ......................................................................... 470,000

Land Rental Expense .......................................................... 14,000

Cash ......................................................................... 14,000

Cash .................................................................................. 140,000Deferred Revenue

Government Grant ............................................. 140,000

BE 10-13

(a)Equipment ................................................................................. 55,000

Contributed Surplus Donated Capital ....................... 55,000

(b)Equipment ................................................................................. 55,000

Donation Revenue ......................................................... 55,000

BE 10-14

Mining Property .................................................................. 487,700*Cash ........................................................................ 487,700

Mining Property .................................................................. 12,300Accumulated Depreciation

Equipment ......................................................... 12,300

Mining Property .................................................................. 75,000Liability for Site Restoration.............................. 75,000

*$400,000 + $100,000 - $12,300 = $487,700

BE 10-15

Accumulated Depreciation ................................................ 55,000

Building ................................................................... 55,000The Building account is now $100,000 - $55,000 = $45,000.

Building ($65,000 $45,000) .............................................. 20,000Revaluation Surplus (OCI) ..................................... 20,000

Note: This assumes that the company has applied IFRS, as the revaluation model is notpermitted under private entity GAAP.


4/5

Note to instructors: Revaluation model using the Proportional Method: The followingdemonstrates the calculations and journal entries using the proportional methoddescribed in the text. This method is not in the requirements of the question,however, it may be used as supplemental information.

Beforerevaluation

Proportional

afterrevaluation

Building $100,000 x 65/45 $144,444Accumulated depreciation 55,000 x 65/45 79,444Carrying amount $ 45,000 x 65/45 $ 65,000

Building .............................................................................. 44,444Accumulated Depreciation .................................... 24,444Revaluation Surplus (OCI) ..................................... 20,000

Note: This assumes that the company has applied IFRS, as the revaluation model is notpermitted under private entity GAAP.

BE 10-16

IFRS private entity GAAP(a) land forundetermined futureuse

may be an investment,but also qualifies asinvestment propertiesunder IAS 40 (fair valuemodel or cost model)

likely considered aninvestment (cost model)

(b) vacant buildingleased out underoperating lease

may be an investment,but also qualifies asinvestment propertiesunder IAS 40 (fair valuemodel or cost model)

likely considered aninvestment (cost model)

(c) property held bysubsidiary (realestate firm) inordinary course ofbusiness

treated as inventoryunder IAS 2

treated as inventory

(d) property held foruse in themanufacturing ofproducts

treated as PP&E long-lived asset under IAS 16(cost model orrevaluation model)

treated as PP&E asset(cost model)

BE 10-17

(a) Revenue expenditure(b) Revenue expenditure(c) Capital expenditure(d) Capital expenditure(e) Capital expenditure(f) Revenue expenditure


5/5

BE 10-18

The cost of the new power train is measurable and it will produce future economicbenefits to Big Wheels Inc. Thus, the new power train should be recognized as an asset.The original invoice for the transport truck did not specify the cost of the power train (ie.

it appears it was not componentized on the original purchase); however, the cost of thereplacement$40,000can be used as an indication (usually by discounting) of thelikely cost of the item seven years ago. If an appropriate discount rate is taken, say 5%per annum for this example, $40,000 discounted back seven years amounts to $28,427($40,000 / (1.05)7), which should be removed from the asset account along with therelated accumulated depreciation on the old power train to date, and the differencerecorded as a loss. The cost of the new power train, $40,000, would be added to the assetaccount, resulting in a new balance in the asset cost account of $101,573 ($90,000 $28,427 + $40,000).

BE 10-19

Expenditures

Date AmountCapitalization

PeriodWeighted-Average

Accumulated Expenditures

3/1 $1,500,000 10/12 $1,250,0006/1 1,200,000 7/12 700,000

$1,950,000

BE 10-20

Total weighted-average accumulated expenditures $1,950,000Less: financed by specific construction loan 1,000,000

Weighted-average accumulated expenditures financed by generalborrowings $ 950,000

Capitalization rate calculation on general borrowings:Principal Borrowing Cost

13%, 5-year note $2,000,000 $260,00015%, 4-year note 3,500,000 525,000

$5,500,000 $785,000

Capitalization rate =$785,000

= 14.27%$5,500,000

BE 10-21Avoidable costs on asset-specific debt

($1,000,000 x 12% x 10/12) $100,000Avoidable costs on general debt

($950,000 x 14.27%) 135,565Total avoidable borrowing costs $235,565

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