Wasting Asset Answer

PROPERTY, PLANT AND EQUIPMENT & WASTING ASSET
1. Give the rule in terms of order of priority for an acquisition by exchange.

If the exchange lacks commercial substance the cost of the property given up
should be measured at the carrying amount thus, no gain or loss should be recognized.
The fair value of neither the asset received nor the asset given up is reliably
measurable. If the exchange transactions has a commercial substance, it can be
categorized whether if there’s a cash involved or there is no cash involved.
If there is no cash involved then it should be measured at Fair market value of
the property given, fair market value of the property received, and cost or book value of
the property given. If cash is involved acquisition should be recorded at fair value of
the asset plus cash payment on the book of the payor and fair value of the asset less
cash payment on the book of the cash recipient thus in both cases gain or loss should
be fully recognized.
2. What is the effect of salvage value in terms of the computation of depreciation

expense on the following methods:
Straight line method - calculating depreciation and amortization, the process of
expensing an asset over a longer period of time than when it was purchased. It is
calculated by dividing the difference between an asset's cost and its expected salvage
value by the number of years it is expected to be used.
Sum of the year’s method - works by depreciating the asset's depreciable
amount by a depreciation factor unique to each year. The depreciable amount is equal
to the asset's total acquisition cost less the asset's salvage value.
Declining Balance Method - an accelerated depreciation system of recording
larger depreciation expenses during the earlier years of an asset's useful life and
recording smaller depreciation expenses during the asset's later years.
3. What are government grant? When do we recognize the grant as an income?

Government grants are defined as the form of assistance from the
government for transfer of a resources to an entity in return for a past or future
compliance with certain conditions relating to the operating activities of the entity, it is
also known as subsidy subvention or premium. This excludes any form of assistance
which there is no reasonable assurance that the entity will comply with the conditions
stipulated to the grants. We only recognize grant as an income in the profit or loss
over a period on a systematic basis necessary to match them with the entity’s related
cost for which the grants are intended to compensate.
4. What is the amount of capitalizable borrowing cost from a specific borrowing?
The amount of the borrowing cost eligible for capitalization shall be determined
as the actual borrowing cost incurred on that borrowing during the period less
any investment income from the temporary investment of those borrowing for specific
purpose of obtaining or constructing the qualifying asset.
5. What is the amount of capitalizable borrowing cost from a general borrowing?

The amount of borrowing cost eligible for capitalization shall be determined by
applying the capitalization rate to the expenditures on the asset. The capitalization
rate is the weighted average of the borrowing cost applicable to the borrowing of the
entity that is outstanding during the period, other than borrowings made specifically for
the purpose of obtaining a qualifying asset. The amount of borrowing cost capitalized
during a period shall not exceed the amount of borrowing cost incurred during that
period.
6. What is wasting asset?

Wasting asset deals with natural resources. Natural resources are assets that
used up when they are consumed. At recognition, exploration and evaluation assets are
measured at cost. usually based on the period of time that they have productive
capacity. As the asset is used, it depreciates, eventually having little or no residual
value.
7. How do we depreciate an immovable asset related to a wasting asset?

An immovable equipment should be depreciated based on the life of the
equipment or the life of the wasting asset whichever is shorter. If the life of the
equipment is shorter and assuming a straight-line method is use, the depreciation is:
depreciable cost over useful life of the asset. If the life of the wasting asset is shorter,
then we will use the unit of output method, where the depreciation rate is: depreciable
cost over units estimated to be extracted.
8. How do we depreciate a movable asset related to a wasting asset?

Movable equipment means a hand-held or non-hand-held machine or device,
powered or unpowered, that is used to do work and is moved within or between work
sites. Movable equipment is depreciated based on the life of the equipment. We just use
the life of the asset and the applicable depreciation methods.
9. How do we depreciate an immovable asset when there is no production of a wasting

asset?
Should there be a shutdown, the depreciation of is computed as remaining book
value before shutdown over remaining life of the equipment. however, when the
operation had resume, the depreciation is computed as depreciation rate/unit is equal to
book value after shutdown over remaining revised estimate unit.

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PROPERTY, PLANT AND EQUIPMENT & WASTING ASSET

1. Give the rule in terms of order of priority for an acquisition by exchange.

2. What is the effect of salvage value in terms of the computation of depreciation

3. What are government grant? When do we recognize the grant as an income?

5. What is the amount of capitalizable borrowing cost from a general borrowing?

6. What is wasting asset?

7. How do we depreciate an immovable asset related to a wasting asset?

8. How do we depreciate a movable asset related to a wasting asset?

9. How do we depreciate an immovable asset when there is no production of a wasting

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