the capitalized value of minerals extracted. ASC 930 (Extractive Activities—Mining) applies to all mining entities,or those that fifind and remove “wasting” natural resources (resources that, once removed, require an act of nature to replace).* This topic indicates (such as in ASC 930-330-25-1) that certain costs incurred during the extraction of resources may be capitalized as part of the value of the extracted resource (unless a market value method is elected, as noted in ASC 930-360-25-2). Conclusion Assuming this arrangement is not a lease, Theta should look next to guidance for mining entities in ASC 930-10. Theta has evaluated its lease arrangement with Betaand has concluded that its mining rights are not within the scope of ASC 840-10, as this topic does not apply to agreements for the right to explore for or to exploit natural resources. Further, use of the access road is considered part of inseparable from the mining rights agreement and thus shall also not be subject to lease accounting. If it were evaluated separately under ASC 840-10, the right to use the access road would not meet the conditions of conveying control to the lessee and thus would not be within the scope of ASC 840-10. 6.4 Asset Exchange (Drafting an Issues Memo) Note to instructor: This case used to have more detailed student instructions (see 2nd edition of book, case 5.1 on p. 133). I cut back the volume ofinstructions to allow students more wiggle room to fifigure this out. If your students need more coaching, encourage them to consider monetary versus nonmonetary in this case, as well as commercial substance. Also, explain that par. 25-6 of this topic actually helps fifigure out a “scope” question. Memorandum To: Paper Paper Inc. Controller's Group
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From: Yu Jhen Liao Date: May/11/2019 Re: Asset exchange between Paper Paper and Achoo Facts Paper Paper Inc. transferred equipment to Achoo Inc. in exchange for the receipt of $1.5 million cash and a 20% equity ownership stake in Achoo. Paper’s book basisin the transferred equipment was $7 million, and the equipment was recently appraised for $7.5 million. The fair value of the investment in Achoo is $6 million, and this fair value was reliably determined. The investment gives Paper signifificant inflfluence over Achoo but is nota controlling fifinancial interest in Achoo. Achoo is in the business of making and selling tissues (such as Kleenex) and will use the equipment for tissue production. Prior to transferring the equipment, Paper used the equipment to produce paper plates and napkins. However, signifificant overseas competition has caused profifit margins and demand for the domestic production of paper plates and napkins to fall. Production using the equipment had recently been cut down to only 1 × 8-hr shift per day. Tissues are expected to be a more profifitable output, with steady consumer demand. Achoo expects torun the equipment for 3 × 8-hr shifts per day. Paper hopes the investment in Achoo will revive its slowing growth prospects. This transaction is illustrated in the following diagram.
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