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Trueblood case

Trueblood case - Daniel Paterson 9:00 Sarah Ketterman 12:20...

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Daniel Paterson 9:00 Sarah Ketterman 12:20 Tim Gallagher 12:20 James Carey 12:20 Eagle is a manufacturing company that has operation in both Serbia and Italy. One of Eagle Company’s assets in Italy is a commercial building that is carried at any cost less any depreciation or impairment loss. The building has a current carrying value $1,100,000. However, there is room for possible impairment based off the chosen accounting standards (GAAP or IFRS). In 2010, under IFRS an impairment was found and the building would have to be written down. Under US GAAP however there would be no impairment. In 2008, Eagle acquired a smaller company and had an increase in goodwill allocated to a cash generating unit. In 2010, legislation was passed creating a possibility for there to be an impairment of the goodwill of Eagle’s operations in Serbia. After the change in legislation, it would necessary to record an impairment of the goodwill. There is a $50,000 difference between the IFRS method ($250,000) and GAAP ($200,000). After the initial impairment, a reversal of the impairment loss is necessary for 2011. This reversal is in accordance with IFRS. Applicable Professional Pronouncements IAS 36 Par 30-57 “Value In Use” IAS 36 Par 58-64 “Recognizing and measuring an impairment loss” IAS 36 Par 18 “Measuring the recoverable amount” IAS 36 Par 90 “Testing cash-generating units with goodwill for impairment” IAS 36 Par 119 “Reversal of an impairment loss” FASB 144 “Impairment of Assets” FASB 320 “Impairment of Goodwill”
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Impairment Loss on Asset: IFRS According IFRS standards set by IAS 36 Par 58 there can be an impairment loss if and only if the recoverable amount of an asset is less than its carrying amount. If this is to occur, the carrying amount of the assets is to be reduced to its recoverable amount and this reduction is the loss on impairment. In order to find if Eagle has an impairment loss on the building on 12/31/10 the recoverable amount must be calculated. As stated in IAS 36 Par 18 the recoverable amount of an asset is the higher of an asset or cash generating unit’s fair value less costs to sell and its value in use. On 12/31/2010, the building’s fair value less costs is equal to $800,000 while its value in use is equal to $900,000. Therefore, the recoverable amount should be $900,000 as it is the higher of the two values. From there, it is necessary to compare the carrying amount to the recoverable amount to see if there is impairment and how large that impairment will have to be. On 12/31/2010, the carrying amount of Eagle’s building is listed $1,100,000 while the recoverable amount was found to be $900,000. Since the recoverable amount is lower than the carrying amount there is impairment. It is now necessary to write down the value of the building to the recoverable amount and to
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Trueblood case - Daniel Paterson 9:00 Sarah Ketterman 12:20...

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