CHAPTER 10
LONG-LIVED ASSETS
SOLUTIONS
1. B is correct. Only costs necessary for the machine to be ready to use can be capitalized. Therefore, Total capitalized costs=12,980+1,200+700+100=$14,980.
2. A is correct. Borrowing costs can be capitalized under IFRS until the tangible asset is ready for use. Also, under IFRS, income earned on temporarily investing the borrowed monies decreases the amount of borrowing costs eligible for capitalization. Therefore, Total capitalized interest=(500 million×14%×2 years) − 10 million=130 million.
3. B is correct. A product patent with a defined expiration date is an intangible asset with a finite useful life. A copyright with no expiration date is an intangible asset with an indefinite useful life. Goodwill is no longer considered an intangible asset under IFRS and is considered to have an indefinite useful life.
4. C is correct. An intangible asset with a finite useful life is amortized, whereas an intangible asset with an indefinite useful life is not.
5. A is correct. If the company uses the straight-line method, the depreciation expense will be one-fifth (20 percent) of the depreciable cost in Year 1. If it uses the units-of-production method, the depreciation expense will be 19 percent (2,000/10,500) of the depreciable cost in Year 1. Therefore, if the company uses the straight-line method, its depreciation expense will be higher and its net income will be lower.
6. C is correct. If Martinez wants to minimize tax payments in the first ...
