101. At Getahead Inc., management is eligible for a bonus based on the ROA of their individual division. It is currently November 2013, and the components division needs a new machine in order to maintain capacity. The manager of the components division is likely to take what action?
A. Buy the new machine to reach capacity and improve ROA by year end
B. Buy a second hand machine in order to save on the cost
C. Do not buy the new machine until after the year end
D. Do not buy the new machine until all excess inventory is sold
The new machine will increase the denominator and lower the ROA.
102. A ratio that can be used to examine the efficiency of use of property, plant and equipment is the:
A. return on assets
B. fixed asset turnover
C. profit margin
D. return on equity
103. Depreciation for tax purposes in Canada is most similar to which accounting method for depreciation?
A. Straight-line
B. Declining balance
C. Units-of -production
D. Replacement cost
104. Medicine Hat MoJo is a small company owned and operated by Alec Klein. If Alec's objectives are income tax minimization and to simplify the bookkeeping as much as possible, which of the following methods of depreciation is MoJo most likely to use?
A. Straight-line
B. Annuity-based
C. Capital cost allowance
D. Units-of-production
105. In early 2014, Gia Minerals Company purchased a large excavator for use in its strip-mining operations at a cost $400,000. It is now December 2014, and the company is preparing its year-end financial statements. An appraiser has gathered the following information related to the excavator:
1. To replace the excavator today would cost $415,000.
2. The net present value of cash flows generated by the excavator over the remainder of its useful life equal $550,000.
3. A recent appraisal of the excavator for insurance purposes valued the machine at $410,000.
Required:
Gia reports under IFRS and management is not sure how to interpret all the information provided and at which one of those values they should report the machine in their 2014 financial statements. Prepare a brief memo to the accountant identifying the proper financial statement valuation for the excavator and clarifying for management the other values. Your memo should include support for your recommendation.