Impairments Case 1 Discount rate 10 Solution 1 Compute the carrying amount CA

Impairments case 1 discount rate 10 solution 1

This preview shows page 37 - 47 out of 53 pages.

Impairments Case 1: Discount rate = 10% Solution: 1. Compute the carrying amount (CA) Accumulated Depreciation = (500,000 - 50,000)/5 * 2 = 180,000 Book Value = 500,000 - 180,000 = 320,000 2. Compute the Recoverable Amount (RA): Higher of Fair Value Less To Sell = 300,000 - 25,000 = 275,000 Value-in-Use = 120,000 * PV factor (i=10%,n=3) = 120,000 * 2.4869 = 298,428 3. Compare CA and RA RA = 298,428 > CA = 320,000, impairment loss = 21,572
Image of page 37

Subscribe to view the full document.

Impairments Case 2: Discount rate = 10% Solution: 4. Journal Entry on December 31, 2018 5. Journal Entry on December 31, 2019, etc. Depreciation Expense = 298,428 / 3 = 99,476 Depreciation Expense Accumulated Depreciation 90,000 90,000 Impairment Loss Accumulated Depreciation 21,572 21,572
Image of page 38
Reversal of Impairment Loss The recoverable amount becomes the basis of the impaired asset. If a review in a future year indicates that the asset is no longer impaired, the loss recognized may be reversed. The amount of the recovery of loss is limited to the carrying amount that would result if the impairment had not occurred.
Image of page 39

Subscribe to view the full document.

Impairment Reversal Case 2: Discount Rate = 10% On December 31, 2020, Redmart determines that the recoverable amount becomes $150,000. Year Depreciable Base Depreciation Rate Depreciation Expense Ending BV if no impairment Updated Ending BV Recoverable Amount 1 450,000 20% 90,000 410,000 2 450,000 20% 90,000 320,000 3 4 5
Image of page 40
Disposal of Impaired Asset Impaired assets held for disposal are to be reported at the lower-of-cost-or-net realizable value (fair value less costs to sell) Net realizable value better measures the net cash flows that it will receive from these assets. Assets held for disposal are not depreciated or amortized. Each period the asset is held, the company revalues it and reports it at the lower-of-cost-or-net realizable value. Assets held for disposal can be written up or down in the future They are like inventory Carrying amount after the write-up cannot exceed the carrying amount of the asset before the impairment.
Image of page 41

Subscribe to view the full document.

Image of page 42
Today’s Topic Depreciation Impairments Depletion Revaluation
Image of page 43

Subscribe to view the full document.

Depletion Natural resources can be divided into two categories: 1. Biological assets (timberlands) IAS 41 Agriculture sets out the accounting for agricultural activity – the transformation of biological assets (living plants and animals) into agricultural produce. The standard generally requires biological assets to be measured at fair value less costs to sell. 2. Mineral resources (oil, gas, and mineral mining). Complete removal (consumption) of the asset. Replacement of the asset only by an act of nature. Depletion is the process of allocating the cost of mineral resources.
Image of page 44
How do we record the extraction and sale of a natural resource? Inventory xx Accumulated Depletion or Natural Resource xx (Cost – Residual Value) Actual Depletion = Depletion Estimate Total Depletion x Natural Resources Accounts Receivable or Cash xx Revenue xx When the natural resources are mined or harvested When the mined or harvested natural resource is sold Cost of Goods Sold xx Inventory xx Activity Method
Image of page 45

Subscribe to view the full document.

On January 1, 2010, NUS Corp acquires land in the northwest for $450,000 and incurs exploration costs to discover platinum of $350,000. NUS Corp estimates that the land has 2,000 lbs of platinum on the land. NUS Corp
Image of page 46
Image of page 47
  • Winter '18
  • jane smith

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Ask Expert Tutors You can ask You can ask ( soon) You can ask (will expire )
Answers in as fast as 15 minutes