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Accounting 2 Dersi 1. Ünite Sorularla Öğrenelim

Property, Plant And Equipment

1. Soru

What are non-current assets?

Cevap

Non-current assets are the assets that are acquired to use in the operations of the business for
several years. Besides these assets, receivables that have due dates of more than one year will also be
reported under non-current assets.


2. Soru

What are  the criteria for an economic resource to be recognized as an asset?

Cevap

It must have a capacity of providing future benefit. Secondly, it must be controlled by the business and lastly the transaction that caused future benefit and control must occur in the past.


3. Soru

Why are "Property, Plant, and Equipment" important for a company's success?

Cevap

Property, Plant, and Equipment assets are critical to a company’s success because they play
a key role in ongoing operations and determine the company’s capacity and therefore its ability to
satisfy customers. 


4. Soru

What are the characteristics of "Property, Plants and Equipment"?

Cevap

Firstly, they are acquired for use in operations and not for resale. Secondly, they are in long-term in nature and usually depreciated and lastly they possess physical substance.


5. Soru

Why are long-lived assets acquired?

Cevap

Long-lived assets such as land, buildings, and equipment, are acquired to use in the
operations of a business.


6. Soru

How can "cost " be described?

Cevap

Cost is the cash or cash equivalent price of obtaining the asset plus all necessary taxes,
purchase commissions and all other amounts paid to ready the asset for its intended use.


7. Soru

What does the cost of the land include?

Cevap

– purchase price
– brokerage commission
– survey and legal fees
– property taxes in arrears
– taxes assessed to transfer the ownership on
the land
– cost of clearing the land and removing
unwanted buildings


8. Soru

Explain "Land improvements".

Cevap

Land improvements are structural additions made to land, such as driveways, parking
lots, fences, landscaping, and underground sprinklers.


9. Soru

What are "Revenue expenditures"?

Cevap

The ordinary repairs are called revenue expenditures (income statement expenditures). Revenue
expenditures do not increase the capacity or efficiency of an asset or extend its useful life and are reported on the income statement as an expense in the period incurred.


10. Soru

Where is a capital expenditure debited?

Cevap

A capital expenditure (balance sheet expenditure) is debited to an asset account because it increases
the asset’s capacity or efficiency or extends the asset’s useful life. A capital expenditure is reported on
the balance sheet as an asset.


11. Soru

Explain "capitalization".

Cevap

Capitalization means recording the expenditure as an asset.


12. Soru

When does the cost for machinery and equipment occur?

Cevap

These costs incur only at the initial recognition of machinery and equipment. In other words, for the first
recognition of these assets, expenditures made for bringing them to their initial use are capitalized.


13. Soru

Give examples of cost of furniture and fixtures.

Cevap

Desks, chairs, sofas, file cabinets, shelving and so forth are all examples for furniture and fixtures. They
are the assets that utilize the company by easing the operations. Like all other long-lived assets, their costs consist of purchase price and other necessary expenditures made to bring them to their intended use.


14. Soru

Rim Co. purchases a minivan to use in marketing department for 140,000 TL and an official
car for CEO for 525,000 TL. Which cost is it?

Cevap

It's the cost of vehicles.


15. Soru

What is depreciation? 

Cevap

Depreciation is the allocation of the longlived assets’ cost to their useful lives in
systematic and rational manner.


16. Soru

How can one measure depreciation?

Cevap

In order to measure the depreciation, three elements must be known;
- The cost of the long-lived asset
- The estimated residual value of the longlived asset
- The estimated useful life of the long-lived
asset


17. Soru

Describe "depreciable cost".

Cevap

Capitalized cost minus estimated residual value is called depreciable cost.


18. Soru

What are the most used depreciation methods?

Cevap

- Straight-line Depreciation Method
- Double Declining Balance Depreciation Method
- Units-of-production Depreciation Method


19. Soru

What are the forms of disposal of property, plant and equipment assets?

Cevap

• Discard (retire) the long-lived asset.
• Sell the long-lived asset for cash.
• Exchange the long-lived asset for another long-lived asset.


20. Soru

Explain the process of exchanging property, plant and equipment assets.

Cevap

As we have noted, companies can dispose of long-lived assets by exchanging (trading) them for another
long-lived asset such as an old machine for a new one. Basically, accounting for exchanges of long-lived
assets is similar to accounting for sales of long-lived assets for cash. But there are some special rules for
exchange of long-lived assets such as deciding about the commercial substance of exchange. In accounting for such exchanges of non-monetary assets, we need to find out if the transaction has commercial substance.
An exchange has commercial substance if the future cash flows change as a result of the exchange.13
In other words, an exchange has commercial substance if the future cash flows (receipts of revenue or
payment of expenses) of the company will change because of the exchange.14 For example, when exchange
of an older machinery for a new machinery will increase productivity and thereby create more revenue for the company, this exchange has commercial substance.
If exchanges have commercial substance (which is when there is a change in cash flow resulting from
the transaction), the parties should recognize a gain or loss on the exchange. The old asset will be removed from the accounting books, and the new asset will be recorded at its market value. Most of the exchanges have commercial substance (even when similar assets are exchanged).
If exchanges do not have commercial substance, ignore any gain or loss on the transaction (there are
a few exceptional situations) and record the acquired asset at the book value of the asset given up in the
exchange plus cash paid and minus cash received instead of at market value.


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