[jeff]

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Jeff Elliott, CPA (KS) | Another71 | NINJA CPA | NINJA CMA | NINJA CPE

[Anonymous]

I did it the same way the explanation did…The BV on jan 1, 2005 would have been $40,000 because two years of depreciation expense had been taken. They tell you that it was est. to have 50,000 machine hours, but two years had already passed so you have to take out the 8500 and 3500 hours that would have been used in 03 and 04. So. The remaning machine hours are estimated to be 38,000. So you have the $40,000/3800= 1.05 and then multiply that by the machine hours for 2005, which was 3,800, and you get $4,000 depreciation expense for 2005.

[Anonymous]

Question: Is land never adjusted to fair value when you are doing consolidations? Or ever, for that matter? I know it's never depreciated.

[Anonymous]

Question: Is land never adjusted to fair value when you are doing consolidations? Or ever, for that matter? I know it's never depreciated.

[Anonymous]

Cost CV Actual Units Depr rate Depr. p/a Comments

1/2/2003 50,000.00 50,000.00 3500 10 yrs 5,000.00 We assume that $5000 was for the 3500 unit

1/2/2004 50,000.00 45,000.00 8500 10 yrs 5,000.00 We assume that $5000 was for the 8500 unit

1/2/2005 50,000.00 40,000.00 3800 8 yrs/38000 hrs 1.05 Remaining machine hrs (50000-3500-8500)=38,000 hrs

Year 5 Rate (CV/Remaining Machine hrs) = $40000/38000 1.052632

Actual hrs 3800

Act. Depr 2005 (Depr. Rate *Actual hrs) 4,000.00

Dr. Depr $4,000

Cr. Acc depr $4,000

[Anonymous]

Cost CV Actual Units Depr rate Depr. p/a Comments

1/2/2003 50,000.00 50,000.00 3500 10 yrs 5,000.00 We assume that $5000 was for the 3500 unit

1/2/2004 50,000.00 45,000.00 8500 10 yrs 5,000.00 We assume that $5000 was for the 8500 unit

1/2/2005 50,000.00 40,000.00 3800 8 yrs/38000 hrs 1.05 Remaining machine hrs (50000-3500-8500)=38,000 hrs

Year 5 Rate (CV/Remaining Machine hrs) = $40000/38000 1.052632

Actual hrs 3800

Act. Depr 2005 (Depr. Rate *Actual hrs) 4,000.00

Dr. Depr $4,000

Cr. Acc depr $4,000

[Anonymous]

@ cpa066729 sorry it took me ages to format my response. Hope it makes basically it what @dante said.

@dante042104 it depends under IFRS yes it can be revalued. But under GAAP yes it can be marked or down if buyer paid more that value then they would record it in the buyers books at purchase price. If there were events that led to the value of the land to increase like oil then you would increase the value. But let me double check that and get back to you.

[Anonymous]

@ cpa066729 sorry it took me ages to format my response. Hope it makes basically it what @dante said.

@dante042104 it depends under IFRS yes it can be revalued. But under GAAP yes it can be marked or down if buyer paid more that value then they would record it in the buyers books at purchase price. If there were events that led to the value of the land to increase like oil then you would increase the value. But let me double check that and get back to you.

[Anonymous]

thanks, Eliabraham. I asked because of this question. It's really the last part that throws me off…the 1.6 and the 1.4…why aren't those being used?

On January 1, Year One, the Plain Company paid over $3 million for all of the outstanding shares of the Simple Company although this company's net book value was only $1.6 million. One reason that Plain made this excess payment was that Simple owned land with a book value of $400,000 and a fair value of $1 million. Plain had land also, with a book value of $800,000 and a fair value of $900,000. Three years later, Simple still holds this property but has bought additional land. Plain also has its land as well as newly-acquired acreage. Simple reports a book value of $700,000 which is now worth $1.6 million and Plain reports a book value of $1.1 million which is now worth $1.4 million. On this later date, what is the consolidated balance to be reported for land?

A $1.7 million

B $2.4 million – answer

C $2.5 million

D $3.0 million

For a consolidation subsequent to the date of acquisition, the two asset accounts should be added together to arrive at $1.8 million ($700,000 plus $1.1 million). An adjustment is also made for the difference in the book value of the subsidiary on the date of acquisition and fair value. At that time, Simple's land was worth $600,000 more than book value ($1 million less $400,000). That adjustment is carried through to subsequent consolidations. No amortization is recorded because land is assumed to have an infinite life. Therefore, the $1.8 million total book value plus the $600,000 acquisition adjustment to fair value gives a consolidated total of $2.4 million.

[Anonymous]

thanks, Eliabraham. I asked because of this question. It's really the last part that throws me off…the 1.6 and the 1.4…why aren't those being used?

On January 1, Year One, the Plain Company paid over $3 million for all of the outstanding shares of the Simple Company although this company's net book value was only $1.6 million. One reason that Plain made this excess payment was that Simple owned land with a book value of $400,000 and a fair value of $1 million. Plain had land also, with a book value of $800,000 and a fair value of $900,000. Three years later, Simple still holds this property but has bought additional land. Plain also has its land as well as newly-acquired acreage. Simple reports a book value of $700,000 which is now worth $1.6 million and Plain reports a book value of $1.1 million which is now worth $1.4 million. On this later date, what is the consolidated balance to be reported for land?

A $1.7 million

B $2.4 million – answer

C $2.5 million

D $3.0 million

For a consolidation subsequent to the date of acquisition, the two asset accounts should be added together to arrive at $1.8 million ($700,000 plus $1.1 million). An adjustment is also made for the difference in the book value of the subsidiary on the date of acquisition and fair value. At that time, Simple's land was worth $600,000 more than book value ($1 million less $400,000). That adjustment is carried through to subsequent consolidations. No amortization is recorded because land is assumed to have an infinite life. Therefore, the $1.8 million total book value plus the $600,000 acquisition adjustment to fair value gives a consolidated total of $2.4 million.

[Anonymous]

Thanks guys, i guess i was thrown off at the 1.05. not sure what that was, i knew the estimated hours was reduced by the actual usage but not sure why you multiply the machine hours by that fraction.

[Anonymous]

Thanks guys, i guess i was thrown off at the 1.05. not sure what that was, i knew the estimated hours was reduced by the actual usage but not sure why you multiply the machine hours by that fraction.

[Anonymous]

oh nvm, i got it

its the depreciation rate. this question was in the chapter about change in accounting estimates so i completely forgot how to that type of deprectiation

[Anonymous]

oh nvm, i got it

its the depreciation rate. this question was in the chapter about change in accounting estimates so i completely forgot how to that type of deprectiation

[Anonymous]

The $1.6 milion and $1.4 million are later years numbers not at acquisition. They are there just to confuse you. If it was an IFRS question you would revalue the land. But GAAP not allowed.

At acquisition value of land increased by $600,000 (because of FV at the time)which we carryforward every year because we now own simple. Then BV @ current year in Simple books $700,000 and Plain BV $1.8 million. Then conso. the two because acquisition was 100% $2.4million.

Eventually I came around hope it makes sense.

[Anonymous]

The $1.6 milion and $1.4 million are later years numbers not at acquisition. They are there just to confuse you. If it was an IFRS question you would revalue the land. But GAAP not allowed.

At acquisition value of land increased by $600,000 (because of FV at the time)which we carryforward every year because we now own simple. Then BV @ current year in Simple books $700,000 and Plain BV $1.8 million. Then conso. the two because acquisition was 100% $2.4million.

Eventually I came around hope it makes sense.

[Author]

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