Client Understanding Paper

1442 Words6 Pages
Client Understanding Paper
April 01, 2013

As a newly hired Staff I there will be a responsibility to analyze the work papers for the organization’s clients. In this situation a client is not clear about why a Staff I is asking for information on adjusting lower of cost or market inventory valuation, capitalizing interest on building construction, recording gain or loss on asset disposal, and adjusting goodwill for impairment and requires explanations on these topics. An explanation of each is provided to include sources from accounting websites, Generally Accepted Accounting Principles (GAAP), and accounting pronouncements. In addition to the explanation for each accounting practice there is also an explanation of
…show more content…
According to, the Financial Accounting Standards Board (FASB) Statement of Financial Accounting Standards (SFAS) No. 34, Capitalization of Interest Cost the interest will be added to the construction cost and reported on the balance sheet. It eventually will be reported on the income statement but will show as part of the assets depreciation expense. The ability to capitalize on the interest ends upon completion of the assets creation and does not include minor modifications. For example, if multiple pieces of equipment are in construction and after each is completed it is prior to the completion of others then the interest may be capitalized on each individual unit upon completion.
Recording Gain or Loss on Asset Disposal Under GAAP when a company disposes of a long-term asset at a cost different from the book value of the asset the difference will require an adjustment to net income on the cash flow statement. The difference between the disposal price and book value is considered either a gain or loss. For example, if a vehicle has a cost of $20,000 less accumulated depreciation of $17,000 the book value will be the difference equating to $3,000. If the vehicle is disposed of for $3,500 the difference between the book value and disposal amount equates to $500. This $500 is recognized as a gain on the sale of the asset and increases net income. Using the same example if the asset sold for $2,000 a loss of
Get Access