Financial Accounting Intro Concepts Meth/Uses
14th Edition
ISBN: 9781285595047
Author: Weil
Publisher: Cengage
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Bell International estimates that a $10 million loss will occur if a foreign government expropriates some company property. Expropriation is considered reasonably possible. How should Bell report the loss contingency? (You may select more than one answer. Single click the box with the question mark to produce a check mark for a correct answer and double click the box with the question mark to empty the box for a wrong answer. Any boxes left with a question mark will be automatically graded as incorrect.)
The contingency is acrrued
The contingency is not accrued
This is a gain contingency
This is a loss contingency
It is probable that the confirming event will occur
The contingency can be reasonably estimated
A disclosure note should describe the contingency
None of these
Provisions shall be recognized for all of the following, except
a. Restructuring costs after a binding sale agreement had been signed
b. Future refurbishment costs due to introduction of a new computer system
c. Rectificationcosts relating to defective products sold
d. Cleaning-up costs of contaminated land when an oil entity has a published policy that it will undertake to clean up all contamination that it causes
XYZ Company has long owned a manufacturing site that has now been discovered to be contaminated with toxic waste. The entity has acknowledged its responsibility for the contamination.
An initial clean up feasibility study has shown that it will cost at least P500,000 to clean up the toxic waste.
During the current year, the entity has been sued for patent infringement and lost the case. A preliminary judgment of P300,000 was issued and is under appeal.
The entity’s attorney agrees that it is probable that the entity will lose this appeal.
What amount of provision should be accrued as liability?
a. 0
b. 800,000
c. 500,000
d. 300,000
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- When an independent valuation expert advises an entity that the salvage value of its plant and machinery had drastically changed and thus the change is material, the entity should (a) Retrospectively change the depreciation charge based on the revised salvage value. (b) Change the depreciation charge and treat it as a correction of an error. (c) Change the annual depreciation for the current year and future years. (d) Ignore the effect of the change on annual depreciation, because changes in salvage values would normally affect the future only since these are expected to be recovered in future.arrow_forwardIn 2022, Mao Li Corporation determined that a production machine used in its operations was impaired and an impairment loss of HK$110,000 was recognized. In 2023, the fair value of the asset increased by HK$170,000 due to an unexpected resurgence in demand for the products the machine was designed to produce. How would the gain due to increase in fair value be recognized in 2023 under IFRS? Group of answer choices IFRS does not permit recognition of gains on reversal of previous impairment loss write-downs. IFRS allows the recognition of this impairment reversal as either income from continuing operations or as other comprehensive income, depending upon management's intent. IFRS permits the recognition of this impairment reversal as income from continuing operations. IFRS permits the recognition of this impairment reversal as other comprehensive income.arrow_forwardOn January 15, 2021, an explosion occurred at the Aizel Company plant causing extensive property damage to area buildings. By March 1, 2022, no claims hand been asserted against the entity but management and counsel concluded that it is likely that claims will be asserted and that it is reasonably possible that the entity will be responsible for damages. Management believed that P1,250,000 would be a reasonable estimate of the liability. The entity's P5,000,000 comprehensive public liability policy has a P250.000 deductible clause. The financial statements for 2021 were issued on March 31, 2022. What amount of loss from lawsuit should be reported in the income statement for 2021?arrow_forward
- In 2022, Mao Li Corporation determined that a production machine used in its operations was impaired and an impairment loss of HK$110,000 was recognized. In 2023, the fair value of the asset increased by HK$170,000 due to an unexpected resurgence in demand for the products the machine was designed to produce. How would the gain due to increase in fair value be recognized in 2023 under IFRS?arrow_forwardQuestion: XYZ Corporation is a global conglomerate with numerous subsidiaries operating in different countries. The company follows International Financial Reporting Standards (IFRS) for its financial reporting. During the current financial year, one of its subsidiaries experienced a significant decline in its market value due to adverse economic conditions. Which of the following statements regarding the impairment testing of assets under IFRS is correct? A) Under IFRS, impairment testing is only required for tangible assets such as property, plant, and equipment, and intangible assets like goodwill are exempt from impairment testing. B) Impairment testing under IFRS is required annually for all assets, regardless of their carrying amount and market value, to assess any potential diminution in value. C) The recoverable amount of an asset is determined as the higher of its fair value less costs to sell and its value in use, where value in use is calculated based on the…arrow_forwardIn 2022, Mao Li Corporation determined that a production machine used in its operations was impaired and an impairment loss of HK$110,000 was recognized. In 2023, the fair value of the asset increased by HK$170,000 due to an unexpected resurgence in demand for the products the machine was designed to produce. How would the gain due to increase in fair value be recognized in 2023 under IFRS? Group of answer choices IFRS allows the recognition of this impairment reversal as either income from continuing operations or as other comprehensive income, depending upon management's intent. IFRS permits the recognition of this impairment reversal as income from continuing operations. IFRS does not permit recognition of gains on reversal of previous impairment loss write-downs. IFRS permits the recognition of this impairment reversal as other comprehensive income.arrow_forward
- 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 andintangible assets. “We have a significant amount of goodwill on our books from last year’s acquisition of Churchill Corporation. Also, I think we may have a problem with the assets of some of our factories out West. And oneof our divisions is currently considering disposing of a large group of depreciable assets.”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 theFASB website (www.fasb.org). Cite the reference locations regarding impairment of property, plant, andequipment and intangible assets.2. When should property, plant, and…arrow_forward(Loss Contingency) Presented below is a note disclosure for Matsui Corporation. Litigation and Environmental: The Company has been notified, or is a named or a potentially responsible party in a number of governmental (federal, state and local) and private actions associated with environmental matters, such as those relating to hazardous wastes, including certain sites which are on the United States EPA National Priorities List (“Superfund”). These actions seek clean-up costs, penalties and/or damages for personal injury or to property or natural resources.In 2017, the Company recorded a pre-tax charge of $56,229,000, included in the “Other expense (income)—net” caption of the Company’s consolidated income statements, as an additional provision for environmental matters. These expenditures are expected to take place over the next several years and are indicative of the Company’s commitment to improve and maintain the environment in which it operates. At December 31, 2017, environmental…arrow_forwardDeclarmen Corporation owns a factory in the United Kingdom. A change in business climate indicates that Declarmen should investigate for possible impairment. Below are date related to the factory’s assets ($ in millions): Book value $ 570 Undiscounted sum of future estimated cash flows 630 Present value of future cash flows 525 Fair value less cost to sell (determined by appraisal) 540 The amount of impairment loss that Declarmen should recognize according to International Financial Reporting Standards is:arrow_forward
- General Optic Corporation operates a manufacturing plant in Arizona. Due to a significant decline in demand for the product manufactured at the Arizona site, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant: Cost $ 35.5million Accumulated depreciation $ 14.5million General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value $ 15.6million The fair value of the Arizona plant is estimated to be $12.5 million. Required: 1. Determine the amount of impairment loss. 2. If a loss is indicated, prepare the entry to record the loss. 3. & 4. Determine the amount of impairment loss assuming that the estimated undiscounted sum of future cash flows is (3) $13.5 million instead of $15.6 million and (4) $21.25 million instead of $15.6 million.arrow_forwardGeneral Optic Corporation operates a manufacturing plant in Arizona. Due to a significant decline in demand for the product manufactured at the Arizona site, an impairment test is deemed appropriate. Management has acquired the following information for the assets at the plant: Cost - $ 32,500,000Accumulated depreciation -14,200,000General’s estimate of the total cash flows to be generated by selling the products manufactured at its Arizona plant, not discounted to present value- 15,000,000 The fair value of the Arizona plant is estimated to be $11,000,000.Required:1. Determine the amount of impairment loss, if any.2. If a loss is indicated, prepare the entry to record the loss.3. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $12,000,000 instead of $15,000,000. 4. Repeat requirement 1 assuming that the estimated undiscounted sum of future cash flows is $19,000,000 instead of $15,000,000arrow_forwardImpairment is defined as a reduction in the value of a company asset, whether fixed or intangible which decline the asset's quality, quantity, or market value. (a) The carrying amount of a machinery is RM525,000. This consists of goodwill of RM75,000, development costs of RM150,000 and machinery of RM300,000. The machinery has a recoverable amount of RM330,000. Calculate the carrying amount of the machinery after the impairment loss has been allocated.arrow_forward
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