Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Textbook Question
Chapter 12, Problem 1JC
Judgment Case 1: Impairments of PPE under IFRS
Refer to the information in Surfing the Standards Case 1 later in the chapter to answer the following questions.
- a. Prepare the calculation of the impairment loss.
- b. What items included in the case itself involved issues of judgment? (Include only those that are ultimately relevant in determining the impairment loss.)
- c. What judgments/decisions did you still need to make? Why did you make the particular decisions in your responses?
Surfing the Standards Case 1: Implements of PPE under IFRS
A&N, Inc. is a manufacturer and retailer of specialized office equipment. It currently operates in two countries, both of which follow IFRS for their financial reporting. For the sake of simplicity, assume that both countries have the same currency, the dollar During its annual impairment assessment of PPE, A&N determined that one of its factories presents with various impairment indicators. Facts related to this factory follow:
- 1. The estimated future life of the factory is 20 to 25 years, and it has a current carrying value of $1,200,000.
- 2. A&N has no sales agreement for the factory, nor does an active market exist. It did sell a similar factory several years ago in another country for $1,000,000. The costs to sell the factory were $67,000.
- 3. A&N has a similar factory in the other country in which it currently operates. Due to differences in the market for their products in the two countries, the cash flow streams will not be similar.
- 4. The table on the next page presents the projected
cash inflows for the factory based on the most recent budgets approved by management. - 5. Although management can demonstrate that its short-term projects tend to be reasonably accurate, there is some uncertainty as to the projected cash flows. Management assesses that there is a range on either side of the projected cash inflows: The cash inflows could be as much as 10% lower than projected or 5% greater than projected. While the most likely amount is included m the following schedule presented, the probabilities associated with each amount are unknown.
- 6. The table on the next page also presents the total projected cash outflows for overhead as well as specific projected outflows for maintenance of the factory. Generally, 25% of overhead is allocable to the use of the factory.
- 7. The increase in projected cash inflows in Year 4 is related to a planned overhaul of the factory. The estimated
cash outflow for the overhaul is $50,000 (which is included in the table’s Other
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ccess the FASB Accounting Standards Codification at the FASB website (www.fasb.org).Required:1. Obtain the relevant authoritative literature on recognition of contingent losses. What is the specific citationthat describes the guidelines for determining when an expense and liability should be accrued for a contingentloss?2. List the guidelines.
Part a. The two basic requirements for the accrual of a loss contingency are supported by several basic concepts of accounting.Three of these concepts are the period of time assumption the recognition principle and the qualitative characteristic of verifiability.
Required:
Discuss how the two basic requirements for the accrual of a loss contingency relate to the tree concepts mentioned above.
Part b. The following three independent sets of facts relate to (1) the possible accrual or (2) the possible disclosure by other means of a loss contingency
Situation I
A company offers a 1 year assurance type warranty for the product that it manufactures. A history of warranty claims has been compiled and the probable amount of claims related to slaes for a given period can be determined.
Situation II
Subsequent to the date of a set financial staements, but prior to the issuance of the financial statements, a company enters into a contract that will probably result in a significant loss to the…
Q21
Which of the following is NOT a step in impairment testing?
Select one:
a. Sell the asset after if the fair value is greater than the recoverable amount
b. Calculate the asset’s carrying amount in the books of the entity
c. Calculate the recoverable amount of the asset
d. Assess whether there are circumstances that may indicate that the asset should be impaired.
Chapter 12 Solutions
Intermediate Accounting (2nd Edition)
Ch. 12 - Prob. 12.1QCh. 12 - Can firms group all property, plant, and equipment...Ch. 12 - Prob. 12.3QCh. 12 - Prob. 12.4QCh. 12 - Do firms follow the same steps for impairment...Ch. 12 - Prob. 12.6QCh. 12 - Prob. 12.7QCh. 12 - Prob. 12.8QCh. 12 - Under IFRS, if a firm recovers an impairment loss...Ch. 12 - Under IFRS, when do firms test plant assets and...
Ch. 12 - Prob. 12.11QCh. 12 - Prob. 12.12QCh. 12 - Prob. 12.1MCCh. 12 - Prob. 12.2MCCh. 12 - Prob. 12.3MCCh. 12 - Prob. 12.4MCCh. 12 - Prob. 12.5MCCh. 12 - Prob. 12.6MCCh. 12 - Prob. 12.1BECh. 12 - Prob. 12.2BECh. 12 - Prob. 12.3BECh. 12 - Prob. 12.4BECh. 12 - Indefinite-Life Intangible Asset Impairment....Ch. 12 - Prob. 12.6BECh. 12 - Prob. 12.7BECh. 12 - Prob. 12.8BECh. 12 - Prob. 12.9BECh. 12 - Prob. 12.10BECh. 12 - Impairment Reversal. IFRS. Perlu Products an IFRS...Ch. 12 - Prob. 12.12BECh. 12 - Prob. 12.13BECh. 12 - Prob. 12.14BECh. 12 - Prob. 12.15BECh. 12 - Prob. 12.16BECh. 12 - Prob. 12.17BECh. 12 - Prob. 12.18BECh. 12 - Prob. 12.19BECh. 12 - Prob. 12.20BECh. 12 - Prob. 12.21BECh. 12 - Prob. 12.22BECh. 12 - Prob. 12.23BECh. 12 - Tangible Asset Impairment. Henne Optical...Ch. 12 - Tangible Asset Impairment Loss. Use the same...Ch. 12 - Prob. 12.3ECh. 12 - Prob. 12.4ECh. 12 - Prob. 12.5ECh. 12 - Tangible Asset Impairment Loss, IFRS. Use the same...Ch. 12 - Prob. 12.7ECh. 12 - Prob. 12.8ECh. 12 - Prob. 12.9ECh. 12 - Assets Held for Disposal. Hattie Corporation...Ch. 12 - Prob. 12.11ECh. 12 - Asset Revaluation, Downwards, IFRS. Lousa Company...Ch. 12 - Tangible Asset Impairment. Chrispian Cookies, Inc....Ch. 12 - Prob. 12.2PCh. 12 - Tangible Asset Impairment. Using the same...Ch. 12 - Prob. 12.4PCh. 12 - Goodwill Impairment, Tangible Fixed Assets, and...Ch. 12 - Tangible Asset Impairment, Potential Reversal,...Ch. 12 - Prob. 12.7PCh. 12 - Prob. 12.8PCh. 12 - Prob. 12.9PCh. 12 - Comprehensive Asset Revaluation Problem (Initial...Ch. 12 - Prob. 12.11PCh. 12 - Judgment Case 1: Impairments of PPE under IFRS...Ch. 12 - Prob. 2JCCh. 12 - Prob. 3JCCh. 12 - Financial Statement Analysis Case 1: Long-Lived...Ch. 12 - Surfing the Standards Case 1: Impairments of PPE...Ch. 12 - Prob. 2SSCCh. 12 - Prob. 1BCCCh. 12 - Basis for Conclusions Case 2: Intangible Assets ...Ch. 12 - Basis for Conclusions Case 3: Goodwill Impairment...
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