Long-term assets

Mammoth, Inc. reports under U.S. GAAP. Mammoth has begun a long-term project to develop inventory control software for external sale. On its financial statements, Mammoth should:

• capitalize all costs of this project.

• expense all costs of this project in the periods incurred.

• expense all costs of this project until technological feasibility has been established.

The average age of a firm's property, plant, and equipment can be estimated by dividing:

• accumulated depreciation by depreciation expense.

• gross PP&E by depreciation expense.

• net PP&E by depreciation expense.

Which of the following items is least likely an example of an intangible asset with an indefinite life?

• Acquired patents.

• Goodwill.

• Trademarks that can be renewed at minimal cost.

An impairment write-down is least likely to decrease a company's:

• assets.

• debt-to-equity ratio.

• future depreciation expense.

Marcel Inc. is a large manufacturing company based in the U.S. but also operating in several European countries. Marcel has long-lived assets currently in use that are valued on the balance sheet at $600 million. This includes previously recognized impairment losses of $80 million. The original cost of the assets was $750 million. The fair value of the assets was determined in a professional appraisal to be $690 million. Assuming that Marcel reports under U.S. GAAP, the new appraisal of the assets' value most likely results in:

• a $90 million gain in other comprehensive income.

• an $80 million gain on income statement and $10 million gain in other comprehensive income.

• no change to Marcel’s financial statements.

Which of the following is best estimated by the ratio of net PP&E to annual depreciation expense?

• Remaining useful life.

• Average age.

• Total useful life.

An analyst will most likely use the average age of depreciable assets to estimate the company's:

• cash flows.

• earnings potential.

• near-term financing requirements.

Which of these intangible assets is most likely to be amortized?

• Purchased franchise right with a useful life of two years.

• Internally developed trademark with a useful life of 20 years.

• Purchased patent that will expire in the current period.

The amortized cost of a trademark is least likely to appear on a firm's balance sheet if the trademark was:

• developed internally.

• obtained in the acquisition of another firm.

• purchased from another firm.

Three years ago, Ranchero Corporation purchased equipment for a process used in production, for ₤3 million. At the end of last year, Ranchero determined the fair value of the equipment was greater than its book value. No impairment losses have been recognized on the equipment. Assuming Ranchero follows International Financial Reporting Standards, what is the impact on its total asset turnover ratio and return on equity of reporting the value of the equipment on the balance sheet at fair value?

• Only one will increase.

• Both will increase.

• Both will decrease.