SSNT11_Oper_Assets2

SSNT11_Oper_Assets2 - Operational Assets: Utilization and...

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Operational Assets: Utilization and Impairment
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Knowledge Check The Alexander Company sold equipment for $35,000. The equipment, which originally cost $100,000 and had an estimated useful life of 10 years and no salvage value, was depreciated for five years using the straight-line method. Cromwell should report the following on its income statement in the year of sale: A) $15,000 loss. B) $15,000 gain. C) $35,000 gain. D) None of the above.
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Knowledge Check The method that does not necessarily produce a declining pattern of depreciation over an asset's service life is: A) The double-declining-balance method. B) The sum-of-the-years'-digits method. C) The units-of-production method. D) All of the above produce a declining pattern.
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Impairment of Value Accounting treatment differs. Operational assets to be held and used Operational assets held to be sold Tangible and intangible with finite useful lives Intangible with indefinite useful lives Goodwill Test for impairment of value when considered for sale. Test for impairment of value at least annually. Test for impairment of value when it is suspected that book value may not be recoverable
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Impairments When the carrying amount of an asset is not recoverable, a company records a write-off referred to as an impairment . Events leading to an impairment: a. Decrease in the market value of an asset. b. Change in the manner in which an asset is used. c. Adverse change in legal factors or in the business climate. d. An accumulation of costs in excess of the amount originally expected to acquire or construct an asset. e. A projection or forecast that demonstrates continuing losses associated with an asset.
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Tangible and Finite-Life Intangibles An asset is impaired when . . . The undiscounted sum of its estimated future cash flows Measurement – Step 1 Its book value <
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Tangible and Finite-Life Intangibles Impairment loss = Book value Fair value Measurement – Step 2 $0 $250 $125 Case 1: $50 book value. No loss recognized Case 2: $150 book value. No loss recognized Case 3: $275 book value. Loss = $275 - $125 Fair Value Undiscounted future cash flows Market value, price of similar assets, or PV of future net cash inflows. Reported as part of income from continuing operations.
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Impairment of Value – Indefinite Life Intangibles Step 2 Loss = BV of goodwill less implied value of goodwill. Other Indefinite Life Intangibles Goodwill Step 1 If BV of business unit > FV, impairment indicated. One-step Process If BV of asset > FV, recognize impairment loss.
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Impairment of Value – Operational Assets to be Sold Impairment loss = Book value Fair value less cost to sell Operational assets to be sold includes assets that management has committed to sell immediately in their present condition and for which sale is probable.
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Impairments • When the carrying amount of an asset is not recoverable, a company records a write-off referred to as an impairment .
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Impairments Exercise: Presented below is information related to equipment
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This note was uploaded on 07/08/2011 for the course ACG 3482C taught by Professor Tinaker during the Fall '09 term at University of Florida.

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SSNT11_Oper_Assets2 - Operational Assets: Utilization and...

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