Joseph Won
ACCT 351
Research Case 2
February 11, 2015
Financial Instruments – Other-Than-Temporary Impairment 1. For the following investments, determine if OTT should record an other-than-temporary impairment as of December 31, 20X1, and if so, for what amount:
• Happy New Year & Co.
* Since the fair value of investment is less than its cost, the Company should proceed to step 2 for identifying and accounting for impairment. However, there is no indication that OTT does not expect the fair value of the security to fully recover before the expected time of sale. The Company actually does not believe the decline in price to be permanent. In addition, it does not intend to sell this investment in the
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* It should be the entire difference between the investment’s cost and its fair value at the balance sheet date of the reporting period for which the assessment is made. So, the recorded amount is (100-72) * 50 = $1,400.
(FASB 320-10-35-34)
3. Assume the same facts as in 2 above, but that OTT has not yet determined whether an impairment exists or the amount of any possible impairment. For March Madness Incorporated, would OTT still conclude that the investment is other-than-temporarily impaired, and would the impairment charge as of December 31, 20X1, be different if the stock price at issuance of the financial statements (i.e., as of January 31, 20X2) was $95 and not $75?
* Unless it is clear that the impairment is deemed other than temporary, we cannot conclude that the investment is other-than-temporarily impaired. For the second part of the question, the charge will not be different because it depends on the fair value at the balance sheet date, not the issuance date.
(FASB 320-10-35-33 and 34)
4. For Tohoku Toys, determine if OTT should record an other-than-temporary impairment as of December 31, 20X1.
* OTT does not believe that the restructuring will ultimately be successful. So, an other-than-temporary impairment should be considered to have occurred if the Company intends to sell them or not.
(FASB 320-10-35-33C)
5. For Chatterbox, what amount should be recorded as the other-than-temporary
ASC paragraph 360-10-35-27 states that long-term debt should be adjusted before testing the asset for recoverability”
Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative factors, if the fair value is less than its book value (likelihood more than 50%), two step of the goodwill impairment test is necessary. According to ASC 350-20-35-2 and 3(A&B&D), if the company determines that it is not more likely than not that fair value is less than the book value, it does
25-7 If a loss cannot be accrued in the period when ti is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonable estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments.”
Where explain the concept of Intangible asset, which represents assets that absence of physical substance. Moreover, Goodwill represents an asset from which is expected future economic benefits, emerge from the acquisition of other assets or business combination. Another important point would be the impartments testing as refers ASC 350-20-35-28 where indicates that Goodwill of reporting unit must be tested for impairment annually. The test can be accomplished at any time in the fiscal year. In the case of different reporting unit, the impairment test could be at different times. This citation in the memorandum was provided incorrect (ASC 305-20-35-1 and 28) this encoding does not exist in FASB.
We will discuss whether the Company’s approach for testing goodwill for impairment after recognizing an impairment charge related to a long-lived asset group classified as held-and-used is appropriate. This issue pertains to whether it is feasible to have a long-lived asset impairment without goodwill impairment.
“Recognition of an impairment loss and the recognition of a gain on the extinguishment of debt are separate events, and each event should be recognized in the period in which it occurs. The Board believes that the recognition of an impairment loss should be based on the measurement of the asset at its fair value and that the existence of nonrecourse debt should not influence that measurement.” (Statement 144, paragraph B34)
ASC 320-10-35-34: “The fair value of the investment would then become the new amortized cost basis of the investment and shall not be adjusted for subsequent recoveries in fair value.”
Because $2.3 million is less than the Carrying Value of the asset group of $4.7 mm, ($2.3 million < $4.7 million), The Impairment loss will be Fair Value of Asset less carrying amount of asset group.
1. Should the information pertaining to actual claims incurred as of the balance sheet date that became available after the balance sheet date be considered in determining management’s best estimate of the medical benefits payable? If so, how does this information impact the amount recognized or disclosed?
According to Section 360-10-35-21, examples of events that would cause an asset to be tested for impairment include a significant decrease in the market price of a long-lived asset, or a asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, or asset group, and a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group.
Prepare the appropriate adjusting entries for Brooks as of December 31, 2010, to reflect the application of the “fair value†rule for both classes of securities described above.
If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s carrying value over its estimated fair value.
The major argument used to support the insolvent trading provisions is that they are necessary to protect the interests of creditors. As stated, insolvent trading provisions have generally ensured a conservative approach by directors when the company is experiencing financial difficulties. The potential alternative effects of such a decision are:
After calculating the fair value of Snowy Ridge’s assets it was necessary to test for impairment. Impairment was tested by comparing the carrying value of each asset to its fair value (see table 2). The carrying value of marketable securities as of June 30th was $4,500,000. The current fair value of marketable securities was found to be 4,565,000, a positive difference of$ 65,000. Changes in marketable securities are reported even without impairment, thus an adjustment was made (see table 3). The carrying value of the mountain division as of June 30th was $12,360,000. The current fair
Since the company has a reorganization value of P760,000 but the assets have a market value of only P700,000 (P90,000 + P210,000 + P400,000), and account entitled Reorganization Value in Excess of Amount Allocable to Tangible Assets must be recorded for P60,000.