BE 11-1

Depreciable Amount or Depreciation Base = ($24,000 + $200 + $125 + $500 + $475)

$3,000 = $22,300.
BE 11-2
(a)

$60,000 $6,000
8

= $6,750

(b)

$60,000 $6,000
8

X 4/12 = $2,250

BE 11-3
(a)
$60,000 X 25%* = $15,000
(b)

($60,000 X 25%) X 3/12 = $3,750

* Rate on declining balance = (1 8) X 2 = 25%

BE 11-4
2011:

($48,000 $3,000) X 52,000

275,000

= $8,509

2012:

($48,000 $3,000) X 65,000

275,000

= $10,636

Alternatively, a rate per km may be computed ($.1636) and this amount applied to the km
driven in each year to determine the expense.
BE 11-5
(a) ($60,000 $6,000) X 8/36 = $12,000
(b) [($60,000 $6,000) X 8/36] X 9/12 = $9,000
BE 11-6
Inventory...................................................................................................
97,650
Accumulated Depletion ................................................................
Liability for Future Site Restoration ............................................
$500,000 + $125,000 + $75,000 $157,500
5,000

84,150
13,500*

= $108.50 per tonne

900 X $108.50 = $97,650

*Liability for Future Site Restoration:
$75,000
= $15.00 per tonne
5,000
900 X $15.00
= $13,500
Note: It is assumed that the site restoration costs are not a function of mining the ore.
Under IFRS, any site remediation costs associated with production are charged to
inventory as a product cost when the site is disfigured. This differs from Canadian
private entity GAAP which has the estimate of the restoration costs added to the original
asset acquired.

BE 11-7
Annual depreciation expense: ($7,000 $1,000)/5 = $1,200
Carrying amount, 1/1/12: $7,000 (2 x $1,200) = $4,600
Depreciation expense, 2012: ($4,600 $500)/2 = $2,050
BE 11-8
Recoverability test:
Future net cash flows ($500,000) < Carrying amount ($540,000); therefore, the
asset has been impaired.
Journal entry:
Loss on Impairment .....................................................................
140,000
Accumulated Impairment Losses ........................................
($540,000 $400,000)

140,000

BE 11-9
No entry. Under the cost recovery impairment model, an impairment loss is not restored
for property, plant, and equipment held for use.

BE 11-10
The recoverable amount is the higher of (1) the assets value in use and (2) its fair value
less costs to sell. In this case, even though the assets were scrapped on January 1, 2012,
the value-in-use at November 30, 2011, was $6 million, which was higher than the fair
value less costs to sell and their carrying amount of $5 million. Therefore, the assets are
not impaired as of the date of the financial statements.
Note: The scrapping of the assets should be disclosed as a postbalance sheet
subsequent event if material.
BE 11-11
(a)
At December 31, 2011:
The recoverable amount is $425,000 [the greater of the assets
$425,000 and (2) the fair value less costs to sell, $400,000].
Impairment:
Carrying amount ........................................................
Less: Recoverable amount .......................................
Impairment loss .........................................................

(1) value in use of

$500,000
425,000
$ 75,000

Loss on Impairment .....................................................................

75,000
Accumulated Impairment Losses ........................................
($500,000 $425,000)

75,000

(b)
At December 31, 2012:
Accumulated Impairment Losses................................................
75,000
Recovery of Impairment Losses ..........................................
($500,000 $425,000)

75,000

The reversal of the impairment loss is limited to the amount required to increase the
assets carrying amount to what it would have been if the impairment loss had not been
recorded. In this case the original cost of the land was $500,000 and the amount of the
impairment recorded to date is $75,000. Since the current recoverable amount of
$550,000 (greater of the value in use of $550,000 and fair value less costs to sell of
$480,000) is greater than the original cost of the land, before impairment was recorded,
the recovery entry is limited to $75,000.
BE 11-12
(a)
Under private entity GAAP: Because the buildings and equipment are specialized and
cannot generate cash-flows on their own, they are combined into an asset group with the
land. The carrying amount of the asset group is $60,000. The cost recovery model
applies a recoverability test to determine if there is impairment. The carrying amount of
$60,000 is compared to the undiscounted cash flows of $65,000. Since the carrying
amount can be recovered (i.e. the undiscounted cash flows are greater than the carrying
amount), there is no impairment, and no impairment loss is recorded.
(b)
Under the IFRS rational entity model, the carrying amount ($60,000) of the cashgenerating group (CGU) is compared to the recoverable amount of $47,000 (the higher of
the CGUs value in use of $47,000 and the CGUs fair value less costs to sell of $35,000).
Carrying amount of CGU........................................... $60,000
Less: Recoverable amount ...................................... 47,000
Impairment loss ......................................................... $13,000
The impairment loss is then allocated to the individual assets in the group, but no
individual asset can be reduced below the highest of (1) its value in use, (2) its fair value
less costs to sell, or (3) zero. In this case, the land is not impaired (recoverable amount is
greater than carrying amount), thus the $13,000 loss is allocated to the buildings and
equipment.
Carrying
Loss
Allocation:
Amount
Proportion
Allocation
Buildings
$30,000
30/40
$ 9,750
Equipment
10,000
10/40
3,250
$40,000
$13,000

BE 11-12 (Continued)
The journal entry to record the impairment is:
Loss on Impairment .....................................................................
13,000
Accumulated Impairment Losses
Building ...............................................................................
Accumulated Impairment Losses
Equipment ...........................................................................

9,750
3,250

BE 11-13
(a)

Depreciation Expense ($3,000 X 8/12).....................................................

2,000
Accumulated Depreciation........................................................... 2,000

(b)

Cash .......................................................................................................
10,500
Accumulated Depreciation ......................................................................
11,000
Machinery ......................................................................................20,000
Gain on Disposal of Machinery.................................................... 1,500

BE 11-14
(a)

Depreciation Expense ($3,000 X 8/12).....................................................

2,000
Accumulated Depreciation........................................................... 2,000

(b)

Cash .......................................................................................................
5,200
Loss on Disposal of Machinery ...............................................................
3,800
Accumulated Depreciation ......................................................................
11,000
Machinery ......................................................................................20,000
BE 11-15
(a)

Asset turnover ratio:

$2,687
$1,923 + $2,487
2

(b)

Profit margin:
$52
= 1.94%
$2,687

(c)

Rate of return on asset:

= 1.22 times

1. 1.22 X 1.94% = 2.36%, or

2.

$52
$1,923 + $2,487
2

= 2.36%

BE 11-16
2011:
2012:
2013:
2014:

$45,000 X 20% X 1/2

$40,500 X 20%
$32,400 X 20%
$25,920 X 20%

=
=
=
=

$ 4,500
8,100
6,480
5,184