NUS Corp estimates the land to have no residual value During the first year NUS

# Nus corp estimates the land to have no residual value

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estimates that the land has 2,000 lbs of platinum on the land. NUS Corp estimates the land to have no residual value. During the first year, NUS Corp extracts 500 lbs of platinum and sells 200 lbs for \$150,000 cash. What journal entry should NUS Corp record on December 31, 2010 to reflect the depletion and sale of the platinum? Inventory 200,000 Accumulated Depletion 200,000 Natural Resources - Example (Cost – Residual Value) Actual Depletion = Depletion Estimate Total Depletion x (800,000 – 0) 2,000 x 500 = 200,000 Cash 150,000 Platinum Revenue 150,000 Cost of Goods Sold 80,000 Inventory 80,000 Mining of platinum Selling the platinum 400 per lbs 400 * 200

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Liquidating Dividends What are liquidating dividends? Accumulated net income (retained earnings) < dividends A return of the investor’s original contribution Generally occurs when the natural resource is the only major asset Example On December 31, 2021, retained earnings is equal to \$54,000 and additional paid in capital is equal to \$43,000. If the company makes a \$60,000 dividend payment, what is the journal entry to record the dividend payment? Retained Earnings 54,000 Additional paid in capital 6,000 Cash 60,000
Today’s Topic Depreciation Impairments Depletion Revaluation

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Revaluation Companies may value their long-lived assets at cost or at fair value Cost model: PP&E carried at cost less accumulated depreciation and accumulated impairment losses cost = initial cost + subsequent costs Revaluation model: PP&E (whose fair value can be measured reliably) carried at fair value at revaluation date less accumulated depreciation and accumulated impairment losses
Revaluation Determination of Fair Value The fair value of land and building is usually determined from market-based evidence by appraisal that is normally undertaken by professionally qualified experts. The fair value of items of plant and equipment is usually their market value determined by appraisal. If there is no market-based evidence of fair value, an entity may need to estimate fair value.

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Revaluation Revaluation should be performed on a class basis: if an item of property, plant and equipment is revalued, the entire class of PP&E to which that asset belongs shall be revalued “Cherry-picking” is not allowed. but company can select to value only one class of assets, say buildings, and not revalue other assets, such as land or equipment.
Recording Revaluation Revaluation decrease are recognized as impairment losses and are reported in the income statement. Any revaluation increase generally goes to equity as an increase to other comprehensive income under the heading of revaluation surplus (i.e., unrealized gain). If a revaluation increase offsets a revaluation loss, a company credits the revaluation increase to income up to the amount of the prior loss. If a revaluation decrease reverses an increase that was reported as an unrealized gain, a company first reduces other comprehensive income by eliminating the unrealized gain.

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Next Time Review the slides from today’s class. Next class: Read Chapter 12 Intangible Assets Any questions?
• Winter '18
• jane smith

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