Research Case 11–9
FASB codification; locate and extract relevant information and cite authoritative support for a financial reporting issue; impairment of property, plant, and equipment and intangible assets
• LO11–8
The company controller, Barry Melrose, has asked for your help in interpreting the authoritative accounting literature that addresses the recognition and measurement of impairment losses for property, plant, and equipment and intangible assets. “We have a significant amount of
Your task as assistant controller is to research the issue.
Required:
- 1. Obtain the relevant authoritative literature on accounting for the impairment of property, plant, and equipment and intangible assets using the FASB Accounting Standards Codification. You might gain access at the FASB website (www.fasb.org). Cite the reference locations regarding impairment of property, plant, and equipment and intangible assets.
- 2. When should property, plant, and equipment and finite-life intangible assets be tested for impairment?
- 3. Explain the process for measuring an impairment loss for property, plant, and equipment and finite-life intangible assets to be held and used.
- 4. What are the specific criteria that must be met for an asset or asset group to be classified as held-for-sale? What is the specific citation reference from the FASB Accounting Standards Codification that contains these criteria?
- 5. Explain the process for measuring an impairment loss for property, plant, and equipment and finite-life intangible assets classified as held-for-sale.
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- 7 Which of the following costs may be capitalized? a. Cost of internally generated goodwill, b. Cost of internally generated mastheads c. Cost of improving an externally purchased goodwill d. Cost of customer list acquired externally 8. Subsequent expenditures on intangible assets are a. expensed immediately. b. capitalized only to extent that the litigation is successful. c. expensed unless they meet the recognition criteria for intangible assets. d. a or b as a matter of accounting policy choice.arrow_forwardQ6 Which of the following assets are required to be impaired every yea? (i) Goodwill acquired in a business combination (ii) Intangible assets with indefinite useful life (iii) A machinery used in the normal production process of an entity (iv) An operating license that is useful for more than five years Select one: a. (iii) and (iv) b. (ii) and (iii) c. (i) and (ii) d. (i), (ii), (iii) and (iv)arrow_forwardQUESTION 10 Which of the following statements is false regarding intangible assets? O a. Intangibles with an indefinite life are not subject to amortization. O b.Purchased intangibles are recorded as assets for the amount paid to acquire them. O c. Internally developed intangibles should be recorded as assets for the amount spent to develop them. O d. Intangibles with a finite life should be amortized on a straight-line basis.arrow_forward
- Exercise 5-21 (Algo) Asset Impairment [LO 5-2] In the current year, the building occupied by Sunshine City's Culture and Recreation Department suffered severe structural damage as a result of a hurricane. It had been 48 years since a hurricane had hit the Sunshine City area, although humicanes in Sunshine City's geographic area are not uncommon. The building had been purchased 10 years earlier at a cost of $2,100,000 and had accumulated depreciation of $525,000 as of the date of the hurricane. Based on a restoration cost analysis, city engineers estimate the impairment loss at $240,000; however, the city expects during the next fiscal year to receive insurance recoveries of $125,000 for the damage. Required a Should the estimated impairment loss be reported as an extraordinary Item? As a special item? A special Item O An extraordinary Item O Ordinary expense, disclosed in the notes to the financial statements Record the estimated impairment loss in the journal for governmental…arrow_forwardQ23 Which of the following statement(s) is (are) true? (i) An intangible asset is impaired if the carrying amount is higher than its recoverable amount (ii) Recoverable amount is the asset’s fair value or its value-in-use at the reporting date. (iii) For an intangible asset with infinite useful life, impairment test should be performed only if there is evidence to indicate that an intangible asset has been impaired. (iv) For an intangible asset with finite useful life, impairment test should be performed annually even if there is no evidence that the asset has been impaired. Select one: a. (i), (ii), (iii) and (iv) b. (i) and (ii) only c. (i) and (iv) only d. (i) onlyarrow_forwardExercise 22-10 Listed below are various types of accounting changes and errors.For each change or error, indicate how it would be accounted for using the following code: 1. Change in a plant asset’s salvage value. select a type of accounting approach 2. Change due to overstatement of inventory. select a type of accounting approach 3. Change from sum-of-the-years’-digits to straight-line method of depreciation. select a type of accounting approach 4. Change from presenting unconsolidated to consolidated financial statements. select a type of accounting approach 5. Change from LIFO to FIFO inventory method. select a type of accounting approach 6. Change in the rate used to compute warranty costs. select a type of accounting approach 7. Change from an unacceptable accounting principle to an acceptable accounting principle. select a type of accounting approach 8. Change in a patent’s…arrow_forward
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- 3. (a) IAS 36 Impairment of Assets provides accounting guidance for the impairment of non-current assets. Requirement: Explain what a cash-generating unit (CGU) is and how an impairment loss in a CGU should be accounted for in accordance with IAS 36.< (b) The carrying amounts of the assets of a cash-generating unit (CGU) are as follows: 2 Goodwill Patents and copyrights Property, plant and equipment J £000 50,000 50,000 150,000 250,000 E 2 2 J There is evidence to indicate that the CGU is impaired. The recoverable amount of the CGU is £180,000. The fair value less costs disposal for the patents and copyrights is estimated at £35,000 and the fair value less costs of disposal for the property, plant and equipment is estimated at £140,000. < Requirement:< Calculate the amount of the impairment loss and explain how this should be allocated between the assets of the CGU.< (c) Explain how IFRS 13 Fair Value Measurement establishes a fair value hierarchy to categorise inputs used to measure…arrow_forwardExercise 5-21 (Algo) Asset Impairment [LO 5-2] In the current year, the bullding occupted by Sunshine City's Culture and Recreation Department suffered severe structural damage as a result of a hurricane. It had been 48 years stnce a hurricane had hit the Sunshine City area, although huricanes In Sunshine City's geographic area are not uncommon. The bullding had been purchased 10 years earler at a cost of $2.100,000 and had accumulated depreciation of $525,000 as of the date of the hurricane. Based on a restoration cost analysis, city engineers estimate the Impairment loss at $240,000, however, the city expects durtng the next fiscal year to recelve insurance recoverles of $125,000 for the damage. Required a Should the estimated impairment loss be reported as an extraordinary tem? As a special Item? OA special Item O An extraordinary Item O Ordinary expense, disclosed in the notes to the financial statements A Record the estimated Impairment loss In the journal for govemmental…arrow_forwardQuestion 37 As a specialist in the accounting of intangible assets, explain if the costs identified can be capitalized. - Tea Limited discovered that it had been manufacturing a product illegally because this product was patented and yet Bee did not have the necessary rights. Bee immediately shut down its factory and hired a firm of lawyers to act on its behalf in the acquisition of the necessary rights to manufacture this product - Legal fees of R60 000 were incurred during July 2007. The legal process was finalised on 31 July 2007, when Tea was then required to pay R900 000 to purchase the rights, including R90 000 in refundable VAT - During the July factory shut-down: - overhead costs of R50 000 were incurred; and - significant market share was lost with the result that Tea’s t total sales over August and September was R30 000 but its expenses were R60 000, resulting in a loss of R40 000 - To increase market share, Bee spent an extra R35 000 aggressively marketing their…arrow_forward
- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning