Financial accounting rules require firms to assess whether they will recover carrying amounts of long-lived assets and, if not, to write down the assets to their fair value and recognize an impairment loss in income from continuing operations. Impairment charges often appear as a separate line item on the income statement of companies that experience reductions in the future benefits originally anticipated from the long-lived assets. Conduct a search to identify a firm (other than those given in this chapter) that has recently reported an impairment charge. Discuss how the firm (a) reported the charge on the income statement, (b) determined the amount of the charge, and (c) used cash related to the charge.
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Financial Reporting, Financial Statement Analysis and Valuation
- Revenue Recognition: Explain the concept of revenue recognition in accounting. Provide examples of situations where revenue recognition might be challenging, and discuss the importance of adhering to appropriate accounting standards. Depreciation Methods: Compare and contrast the straight-line and declining balance methods of depreciation. Discuss the advantages and disadvantages of each method, and explain how the choice of depreciation method can impact a company's financial statements.arrow_forwardAn assessment of accounting practices for asset impairments is especially important in the context of financial reporting quality in that it requires the exercise of considerable management judgement and reporting discretion. The importance of this issue is heightened during periods of ongoing economic uncertainty as a result of the need for companies to reflect the loss of economic value in a timely fashion through the mechanism of asset write-downs. There are many factors which can affect the quality of impairment accounting and disclosures. These factors include changes in circumstance in the reporting period, the market capitalization of the entity, the allocation of goodwill to cash generating units, valuation issues and the nature of the disclosures. Required: Discuss the importance and significance of the above factors when conducting an impairment test under IAS 36 Impairment of Assets.arrow_forwardA company’s management has uncovered events that indicate that substantial doubt exists that the company can pay its debts as they come due over the following year. What should management do next? a. Management should disclose that substantial doubt exists that the company can remain in existence. b. Management should examine the plans created to address the concern. c. Management should adjust all asset balances to fair value. d. Management should adjust all liabilities to expected settlement amounts.arrow_forward
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- Change in accounting estimate, as used in the recording and reporting of financial data, does not include a. Change from capitalizing to expensing research and development costs because of the accepted uncertainty of future benefits. b. Change in the estimated useful life of the asset subject to depreciation. c. Change in the number of companies included in the combined financial statements. d. Change in the estimated rate of doubtful accountsarrow_forwardPresent an argument to support the idea that your company’s land should not be depreciated, even though the property on the land is depreciated? Using practical example describe how International Accounting Standard 40 would apply to Assets in your company? Depreciation does not involve movement of cash, therefore unnecessary in accounting for an entity’s performance, Discuss?arrow_forward) A company has decided to change its depreciation method to better reflect the pattern of use ofits equipment.Which of the following correctly reflects what this change represents and how it should beapplied?A It is a change of accounting policy and must be applied prospectivelyB It is a change of accounting policy and must be applied retrospectivelyC It is a change of accounting estimate and must be applied retrospectivelyD It is a change of accounting estimate and must be applied prospectivelyarrow_forward
- Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning