5 Lecture

1. What is Property, Plant, and Equipment (PP&E)? A) Short-term assets used in a company's operations. B) Tangible, long-term assets used in a company's operations. C) Intangible, long-term assets used in a company's operations. D) Short-term liabilities of a company.

Answer: B

2. Which of the following assets is considered part of PP&E? A) Cash B) Inventory C) Land D) Accounts Receivable

Answer: C

3. What is the purpose of recording depreciation on PP&E? A) To reduce the asset's carrying value over time. B) To increase the asset's carrying value over time. C) To recognize the asset's market value. D) To recognize the asset's potential future value.

Answer: A

4. Which depreciation method calculates depreciation expense based on the asset's usage? A) Straight-line method B) Double-declining balance method C) Units-of-production method D) Sum-of-the-years'-digits method

Answer: C

5. When does a company recognize a gain or loss on the disposal of PP&E? A) When the asset is sold for more than its carrying value. B) When the asset is sold for less than its carrying value. C) When the asset is sold for its carrying value. D) A and B.

Answer: D

6. What is a useful life? A) The length of time an asset is expected to be used in a company's operations. B) The time period when a company can legally own an asset. C) The period of time when a company can generate revenue from an asset. D) The amount of time it takes for an asset to become obsolete.

Answer: A

7. What is salvage value? A) The estimated amount a company will receive when it sells an asset. B) The cost of maintaining an asset. C) The residual value of an asset at the end of its useful life. D) The amount a company paid for an asset.

Answer: C

8. How does the acquisition of PP&E affect a company's cash flow statement? A) It does not affect the cash flow statement. B) It increases the cash flow from operating activities. C) It decreases the cash flow from operating activities. D) It increases the cash flow from investing activities.

Answer: D

9. Which of the following is not an example of PP&E? A) Trademarks B) Buildings C) Machinery D) Vehicles

Answer: A

10. How does a company account for major improvements to PP&E? A) It adds the cost of the improvement to the asset's carrying value. B) It records the cost of the improvement as an expense. C) It records the cost of the improvement as revenue. D) It records the cost of the improvement as a liability.

Answer: A

1. What is Property, Plant, and Equipment (PP&E)? Answer: PP&E refers to tangible, long-term assets used in a company's operations, including land, buildings, machinery, equipment, vehicles, and other assets that have a useful life of more than one year.

2. What is the purpose of depreciating PP&E? Answer: Depreciating PP&E reduces the asset's carrying value over time, which reflects the asset's decreased value due to wear and tear or obsolescence.

3. What is the difference between salvage value and residual value? Answer: Salvage value refers to the estimated amount a company will receive when it sells an asset, while residual value refers to the estimated value of an asset at the end of its useful life.

4. What is the difference between straight-line depreciation and accelerated depreciation methods? Answer: Straight-line depreciation charges the same amount of depreciation each year, while accelerated depreciation methods charge higher depreciation in the early years of an asset's useful life.

5. How does the disposal of PP&E affect a company's financial statements? Answer: The disposal of PP&E can result in a gain or loss, which is recognized on the income statement. The asset's carrying value is removed from the balance sheet, and the cash received or paid is reflected on the cash flow statement.on the cash flow statement.

6. How is the cost of PP&E determined? Answer: The cost of PP&E includes all expenses necessary to acquire and prepare the asset for its intended use, such as purchase price, transportation costs, installation costs, and legal fees.

7. What is a useful life, and how is it determined? Answer: Useful life refers to the length of time an asset is expected to be used in a company's operations. It is determined based on factors such as the asset's physical life, economic life, and technological obsolescence.

8. How is depreciation expense calculated? Answer: Depreciation expense is calculated by dividing the cost of the asset by its useful life and applying the appropriate depreciation method.

9. What is an impairment loss, and when is it recognized? Answer: An impairment loss occurs when the carrying value of an asset exceeds its recoverable amount. It is recognized on the income statement and reduces the asset's carrying value on the balance sheet.

10. How do major improvements to PP&E affect a company's financial statements? Answer: Major improvements to PP&E are capitalized and added to the asset's carrying value, which increases the asset's book value and extends its useful life.

Property, Plant, and Equipment (PP&E) are tangible long-term assets that a company uses to generate income. Examples of PP&E include land, buildings, machinery, equipment, and vehicles. These assets are essential for a company's operations and are expected to provide benefits over a period of more than one year. To record PP&E, companies must first determine the cost of acquiring and preparing the asset for its intended use. This includes the purchase price, transportation costs, installation costs, and legal fees. Companies must then estimate the asset's useful life and select a depreciation method. Depreciation is the process of allocating the cost of PP&E over its useful life. There are various depreciation methods available, including straight-line, double-declining balance, and sum-of-the-years-digits. Companies must choose the most appropriate method for each asset. The carrying value of PP&E is the asset's cost less its accumulated depreciation. The carrying value reflects the current value of the asset on a company's balance sheet. As the asset is used over time, its carrying value is reduced through depreciation. When a company sells or disposes of PP&E, it must remove the asset's carrying value from the balance sheet and record any gain or loss on the income statement. If the selling price exceeds the asset's carrying value, a gain is recognized. If the selling price is less than the asset's carrying value, a loss is recognized. Companies must also assess their PP&E for impairment. An impairment loss occurs when the carrying value of an asset exceeds its recoverable amount. Recoverable amount is the higher of an asset's fair value less selling costs and its value in use. Impairment losses are recognized on the income statement and reduce the asset's carrying value on the balance sheet. Major improvements to PP&E are capitalized and added to the asset's carrying value, which increases the asset's book value and extends its useful life. Improvements that extend the asset's useful life or increase its capacity are treated as capital expenditures and depreciated over the remaining useful life of the asset. In conclusion, PP&E is an important part of a company's balance sheet, and it is crucial that companies properly record and depreciate these assets to ensure accurate financial reporting.