FAR Practice Questions: R&D Equipment, Foreign Investments

Okay, I've got three practice questions for you today

These are also from FAR, and these are random. These aren't specific topics

So the first question here is, how should equipment be depreciated that was used in

R&D but has alternative uses in the future? So you can either capitalize and depreciate it over the span of the R&D project, capitalized

or expensed, but not both, depending on how long the R&D project lasted

Can you immediately expense it, or do you capitalize and depreciate it over its estimated

useful life? So pause this video if you want to think about it for yourself

The answer is D. So any equipment that has – even if it is used in R&D, if it has alternative future

uses, it should be depreciated over its useful life like a regular piece of equipment would be

The only difference is that during the R&D project, the depreciation expense will be

recorded as an R&D expense. Okay, let's go to the next one

If you are investing in a foreign operation, what would you most likely do to hedge your investment

Would you invest in debt in the same amount in your domestic currency

Would you invest in equity securities in your domestic currency? Would you invest in equity securities in the same foreign currency as the investment you're

trying to hedge? Or would you borrow from another foreign entity with the same foreign currency as the investment

And again, pause this if you want to think through it yourself

The answer is D. Whoops, that's not what I meant

So since the investment in the foreign currency is an asset and borrowing would be a liability

you would borrow from another foreign entity that's in the same foreign currency as the

investment you're trying to hedge because any changes in the exchange rates would have

offsetting effects. Next question. Which of the following may not be measured and reported at fair value at the election

of an entity? Is it accounts payable, investment in a subsidiary that will be consolidated, investment in debt

securities that are held to maturity investments, or accounts receivable? The answer here is B. So if a subsidiary is going to be consolidated, then the investment

in that entity will be eliminated in the consolidation and it'll be replaced by the

subsidiary's assets and liabilities on the consolidated balance sheet. So if an investment is going to be consolidated, then it can't be reported at fair value because

the actual investment will be replaced ultimately on the consolidated balance sheet by the subsidiary's

assets and liabilities and possibly goodwill. So those are the practice questions for today