5. NCC Exploration and Production is a joint venture of two partners, a Thai and a Burmese company. The company's principal business operations are exploration and production of silver in Thailand. Recently, the company has purchased a well-known jewelry store in Kanchanaburi province and planed to use it as a showroom The following information is details and balance of some accounts shown in a trial balance before adjustment) of the company for the year ended December 31, 2012. Date of Acquisition Accounts Balance (Baht) 1/12/2012 Non-current assets held for sale 25,000 1/12/2012 Investment property 1,000,000 1/8/2009 Land 2,000,000 1/1/2010 Building 3,000,000 Accumulated depreciation-building 200,000 1/6/2011 Machinery 500,000 Accumulated depreciation-machinery 116,667 1/10/2012 Equipment 100,000 30/6/2012 Patent 50,000 1/4/2012 Silver mine 2,200,000 1/12/2012 Goodwill 500,000 Each account comprises only one item of asset. Machinery and equipment are used in productions and most of the productions are in earlier years, so the company uses accelerated depreciation methods for these accounts. Accounting policies for non-current assets are as follows: Accounts Method Useful Life Residual Value (Baht) 30 years 0 4 years 0 Building Machinery Equipment Patent Straight-line Sum-of-the-years' digits Double declining balance Straight-line Units-of-production 5 years 5,000 20 years 0 Silver mine 300,000 200,000 ounces Indefinite life Goodwill 0 Instructions: a. Compute relevant expenses to depreciate property, plant and equipment. Show the answers in the space provided. Accounts Depreciation Expense (Baht) Building Machinery Equipment b. Prepare adjusting entries for Patent and Silver mine at December 31, 2012. The company extracted 30,000 ounces of silver in the first year. The company uses appropriate accumulated accounts to record amortization and depletion. c. What if before adjusting depreciation expense at December 31, 2012, the company's accountant was informed that the building had a remaining useful life of 25 years, rather than 28 years, and residual value was approximately 200,000 baht; what would be the amount of depreciation expense of building? Prepare the journal entry to record such depreciation and show calculation. d. The cost of 2.2 million silver mine included an unsuccessful exploratory mining cost of 100,000 baht. What kind of recognition concepts was used here (full-cost or successful- efforts concept)? If another method was used, how would it differently affect depletion amortization and net income for the year 2012? Explain. e. The accounts of non-current assets held for sale and investment property are the assets previously owned by the jewelry store. The company plans to sell them shortly so they were excluded in Property, Plant and Equipment. The 25,000 baht non-current assets held for sale is a net realizable value of equipment, of which the original cost was 300,000 baht and accumulated depreciation was 255,000 baht. The investment property of 1 million baht is a fair value of land. The original cost of land was 0.8 million baht. Please tick in the box in order to answer the following questions. Yes No a) b) Is the company's classification on the equipment correct? Is the valuation of equipment in accordance with a lower of cost or net realizable value concept? Does the company need to depreciate this equipment? Do you agree that the value of land should be presented at fair value, rather than its historical cost? c) d) f. What if the company changed its plan to not sell the equipment detailed in Question 3.5, but will exchange it for a new machine; what will the journal entry be when new machine is obtained? Assume the equipment and accumulate depreciation are included in the accounts of equipment and accumulated depreciation, and depreciation was already adjusted to date. The new machine lists for 32,000 baht and the company additionally pays 7,000 baht in cash. 6. Presented below is information related to copyrights owned by Broccolis Company at December 31, 2011. Original cost... $ 6,000,000 Carrying amount.. 3,000,000 Fair value less costs to sell 2,400,000 Value-in-use... 2,500,000 The copyright has a limited life of 20 years and no residual value. The company applies straight-line method to amortize intangible assets. As of December 31, 2011 the copyright is estimated to have a remaining useful life of 10 years. Assume that Broccolis Company will continue to use this copyright in the future. Instructions: g. Prepare the journal entry (if any) to record the impairment of asset at December 31, 2011. The company does not use accumulated amortization accounts. h. Prepare the journal entry to record copyright amortization expense for 2012 related to this copyright. i. The amount of the copyright recoverable at December 31, 2012 is $2,800,000. Prepare the journal entry (if any) to record the increase in fair value. Showing the determination of this valuation is suggested. 7. Presented below is information related to equipment owned by Cecile Company at December 31, 2012. Equipment, bought on July 1, 2011 $12,000 Accumulated depreciation to date 1,500 Unrealized gain on revaluation 500 The company expected to use this equipment for 10 years and after which the company expects to be able to sell it for $2,000. Cecile Company elects to value this equipment using revaluation accounting. Assume straight-line method is applied for this class of equipment. Instructions: a. Prepare the journal entry (if any) to record the impairment of asset at December 31, 2012. Assume the recoverable amount of equipment is $9,000. b. Prepare the journal entries to record depreciation expense for 2013 and to transfer the difference between depreciation based on the revalued carrying amount and depreciation based on the equipment's original cost (if any) to retained earnings. c. Prepare the journal entry (if any) to record the increase in fair value, if the recoverable amount of this equipment at December 31, 2013 is $8,500. 5. NCC Exploration and Production is a joint venture of two partners, a Thai and a Burmese company. The company's principal business operations are exploration and production of silver in Thailand. Recently, the company has purchased a well-known jewelry store in Kanchanaburi province and planed to use it as a showroom The following information is details and balance of some accounts shown in a trial balance before adjustment) of the company for the year ended December 31, 2012. Date of Acquisition Accounts Balance (Baht) 1/12/2012 Non-current assets held for sale 25,000 1/12/2012 Investment property 1,000,000 1/8/2009 Land 2,000,000 1/1/2010 Building 3,000,000 Accumulated depreciation-building 200,000 1/6/2011 Machinery 500,000 Accumulated depreciation-machinery 116,667 1/10/2012 Equipment 100,000 30/6/2012 Patent 50,000 1/4/2012 Silver mine 2,200,000 1/12/2012 Goodwill 500,000 Each account comprises only one item of asset. Machinery and equipment are used in productions and most of the productions are in earlier years, so the company uses accelerated depreciation methods for these accounts. Accounting policies for non-current assets are as follows: Accounts Method Useful Life Residual Value (Baht) 30 years 0 4 years 0 Building Machinery Equipment Patent Straight-line Sum-of-the-years' digits Double declining balance Straight-line Units-of-production 5 years 5,000 20 years 0 Silver mine 300,000 200,000 ounces Indefinite life Goodwill 0 Instructions: a. Compute relevant expenses to depreciate property, plant and equipment. Show the answers in the space provided. Accounts Depreciation Expense (Baht) Building Machinery Equipment b. Prepare adjusting entries for Patent and Silver mine at December 31, 2012. The company extracted 30,000 ounces of silver in the first year. The company uses appropriate accumulated accounts to record amortization and depletion. c. What if before adjusting depreciation expense at December 31, 2012, the company's accountant was informed that the building had a remaining useful life of 25 years, rather than 28 years, and residual value was approximately 200,000 baht; what would be the amount of depreciation expense of building? Prepare the journal entry to record such depreciation and show calculation. d. The cost of 2.2 million silver mine included an unsuccessful exploratory mining cost of 100,000 baht. What kind of recognition concepts was used here (full-cost or successful- efforts concept)? If another method was used, how would it differently affect depletion amortization and net income for the year 2012? Explain. e. The accounts of non-current assets held for sale and investment property are the assets previously owned by the jewelry store. The company plans to sell them shortly so they were excluded in Property, Plant and Equipment. The 25,000 baht non-current assets held for sale is a net realizable value of equipment, of which the original cost was 300,000 baht and accumulated depreciation was 255,000 baht. The investment property of 1 million baht is a fair value of land. The original cost of land was 0.8 million baht. Please tick in the box in order to answer the following questions. Yes No a) b) Is the company's classification on the equipment correct? Is the valuation of equipment in accordance with a lower of cost or net realizable value concept? Does the company need to depreciate this equipment? Do you agree that the value of land should be presented at fair value, rather than its historical cost? c) d) f. What if the company changed its plan to not sell the equipment detailed in Question 3.5, but will exchange it for a new machine; what will the journal entry be when new machine is obtained? Assume the equipment and accumulate depreciation are included in the accounts of equipment and accumulated depreciation, and depreciation was already adjusted to date. The new machine lists for 32,000 baht and the company additionally pays 7,000 baht in cash. 6. Presented below is information related to copyrights owned by Broccolis Company at December 31, 2011. Original cost... $ 6,000,000 Carrying amount.. 3,000,000 Fair value less costs to sell 2,400,000 Value-in-use... 2,500,000 The copyright has a limited life of 20 years and no residual value. The company applies straight-line method to amortize intangible assets. As of December 31, 2011 the copyright is estimated to have a remaining useful life of 10 years. Assume that Broccolis Company will continue to use this copyright in the future. Instructions: g. Prepare the journal entry (if any) to record the impairment of asset at December 31, 2011. The company does not use accumulated amortization accounts. h. Prepare the journal entry to record copyright amortization expense for 2012 related to this copyright. i. The amount of the copyright recoverable at December 31, 2012 is $2,800,000. Prepare the journal entry (if any) to record the increase in fair value. Showing the determination of this valuation is suggested. 7. Presented below is information related to equipment owned by Cecile Company at December 31, 2012. Equipment, bought on July 1, 2011 $12,000 Accumulated depreciation to date 1,500 Unrealized gain on revaluation 500 The company expected to use this equipment for 10 years and after which the company expects to be able to sell it for $2,000. Cecile Company elects to value this equipment using revaluation accounting. Assume straight-line method is applied for this class of equipment. Instructions: a. Prepare the journal entry (if any) to record the impairment of asset at December 31, 2012. Assume the recoverable amount of equipment is $9,000. b. Prepare the journal entries to record depreciation expense for 2013 and to transfer the difference between depreciation based on the revalued carrying amount and depreciation based on the equipment's original cost (if any) to retained earnings. c. Prepare the journal entry (if any) to record the increase in fair value, if the recoverable amount of this equipment at December 31, 2013 is $8,500