Starburst Manufacturing reports the following long-term assets for its lighting division: $\begin{array}{|l|r|r|} \hline& \text { Carrying value } & \begin{array}{c} \text { Estimated fair } \\ \text { value } \end{array} \\ \hline \text { Factory building (shared with other divisions) } & \$ 2,500,000 & \\ \hline \text { Less: Accumulated depreciation } & (1,000,000 & \\ \hline \text { Net book value } & \$ 1,500,000 & \$ 3,800,000 \\ \hline \text { Land } & \$ 1,750,000 & \$ 3,500,000 \\ \hline \text { Manufacturing equipment for lighting division } & \$ 525,000 & \\ \hline \text { Less: Accumulated depreciation } &(150,000 )& \\ \hline \text { Net book value } & \$ 375,000 & \$ 340,000 \\ \hline \text { General factory equipment (used in several } & \\ \text { divisions) } &\$ 1,600,000 & \\ \hline \text { Less: Accumulated depreciation } &(900,000 ) \\ \hline \text { Net book value } & \$ 700,000 & \$ 650,000\\ \hline\text { Total net fixed assets }& \$ 4,325,000\\ \hline \end{array}$ As a result of new technology, Starburst believes that the lighting division's equipment in their manufacturing facility is nearly obsolete. They project the following future cash flows for the lighting division's operations: Future period Cash-flow projection Year 1 $50,000 Year 2 $35,000 Year 3 $20,000 Year 4 $12,000 Year 5 $6,000 What is the impairment loss, if any, for the appropriate asset group, assuming a discount rate of 8%? (Use spreadsheet software or a financial calculator to calculate your answer.)

A) $105,084 B) $269,916 C) $0 D) $375,000 A) $105,084 B) $269,916 C) $0 D) $375,000 B

Native Corporation has determined that one of its finite-life intangible assets is impaired. The asset's net carrying value on the date of impairment is $1,250,000. In order to estimate impairment, the company uses the discounted cash-flow model. The company projects the asset's future cash flows as follows: \[\begin{array} { | c | c | } \hline \text { Future period } & \text { Cash-flow projection } \\ \hline \text { Year 1 } & \$ 500,000 \\ \hline \text { Year 2 } & \$ 350,000 \\ \hline \text { Year 3 } & \$ 200,000 \\ \hline \text { Year 4 } & \$ 120,000 \\ \hline \text { Year 5 } & \$ 60,000 \\ \hline \end{array}\] Assuming a discount rate of 7%, which of the following is included in the journal entry to record the loss? (Use spreadsheet software or a financial calculator to calculate your answer.)

A) credit Impairment Loss on Intangible Asset $30,000 B) debit Accumulated Depreciation $179,421 C) debit Intangible Asset $30,000 D) credit Intangible Asset $179,421 A) credit Impairment Loss on Intangible Asset $30,000 B) debit Accumulated Depreciation $179,421 C) debit Intangible Asset $30,000 D) credit Intangible Asset $179,421

Exam 12: Long-Term Operating Assets: Departures From Historical Cost

Explain the IFRS limitations on reversal of previously recognized impairment losses for property, plant, equipment and finite-life intangible assets.

Free

(Essay)

4.7/5

(81)

Question 1

Correct Answer:

Verified

There are two important constraints:
1. The amount of the write-up (reversal) is limited to the amount of the original impairment loss. The reversal cannot exceed the original impairment loss.
2. The reversal cannot result in a company reporting a value that is higher than what it would be reporting if the asset had never been impaired.
Firms report a reversal of an impairment loss in income.

Starburst Manufacturing reports the following long-term assets for its lighting division: Carrying value Estimated fair value Factory building (shared with other divisions) \ 2,500,000 Less: Accumulated depreciation (1,000,000 Net book value \ 1,500,000 \ 3,800,000 Land \ 1,750,000 \ 3,500,000 Manufacturing equipment for lighting division \ 525,000 Less: Accumulated depreciation (150,000) Net book value \ 375,000 \ 340,000 General factory equipment (used in several divisions) \ 1,600,000 Less: Accumulated depreciation (900,000) Net book value \ 700,000 \ 650,000 Total net fixed assets \ 4,325,000 As a result of new technology, Starburst believes that the lighting division's equipment in their manufacturing facility is nearly obsolete. They project the following future cash flows for the lighting division's operations: Future period Cash-flow projection Year 1 $50,000 Year 2 $35,000 Year 3 $20,000 Year 4 $12,000 Year 5 $6,000 What is the impairment loss, if any, for the appropriate asset group, assuming a discount rate of 8%? (Use spreadsheet software or a financial calculator to calculate your answer.)

Free

(Multiple Choice)

4.9/5

(91)

Question 2

Correct Answer:

Verified

Which of the following statements regarding long-term operating assets classified as held for sale or disposal is true?

Free

(Multiple Choice)

4.9/5

(81)

Question 3

Correct Answer:

Verified

U.S. GAAP does not permit subsequent reversals of impairment losses for indefinite-life intangible assets.

(True/False)

4.8/5

(86)

Question 4

U.S. GAAP does not permit subsequent reversals of goodwill impairment losses.

(True/False)

4.9/5

(79)

Question 5

Under the IFRS one-step impairment test, a long-term operating asset's recoverable value is its fair value or its value in use, whichever is lower.

(True/False)

4.7/5

(72)

Question 6

Which of the following statements regarding IFRS impairment testing for goodwill is false?

(Multiple Choice)

4.7/5

(89)

Question 7

List four impairment indicators for long-term operating assets.

(Essay)

4.9/5

(77)

Question 8

Firms associate goodwill with the group of net assets at the level of the operating segment or one level below the operating segment.

(True/False)

4.8/5

(88)

Question 9

IFRS associates goodwill with a cash-generating unit.

(True/False)

4.9/5

(87)

Question 10

Impairment testing is conducted annually for both limited-life and indefinite-life intangible assets.

(True/False)

4.8/5

(71)

Question 11

One example of an impairment indicator for property, plant and equipment is a significant adverse change in legal factors that affect the value of an asset or asset group.

(True/False)

4.9/5

(89)

Question 12

Long-term operating assets can be reported on the balance sheet at fair value instead of historical cost. Does this statement apply to IFRS and U.S. GAAP?

(Multiple Choice)

4.7/5

(89)

Question 13

List the four key steps related to accounting for impairments of long-term operating assets.

(Essay)

4.8/5

(86)

Question 14

Which of the following disclosure requirements for long-term asset impairment apply to IFRS but not to U.S. GAAP?

(Multiple Choice)

4.8/5

(78)

Question 15

U.S. GAAP allows for subsequent reversals of write-downs for long-term operating assets held for use in operations.

(True/False)

5.0/5

(75)

Question 16

Native Corporation has determined that one of its finite-life intangible assets is impaired. The asset's net carrying value on the date of impairment is $1,250,000. In order to estimate impairment, the company uses the discounted cash-flow model. The company projects the asset's future cash flows as follows: Future period Cash-flow projection Year 1 \ 500,000 Year 2 \ 350,000 Year 3 \ 200,000 Year 4 \ 120,000 Year 5 \ 60,000 Assuming a discount rate of 7%, which of the following is included in the journal entry to record the loss? (Use spreadsheet software or a financial calculator to calculate your answer.)

(Multiple Choice)

4.7/5

(87)

Question 17

In 2011, Bellding Inc. acquired production machinery at a cost of £638,000, which now has accumulated depreciation of £384,000. The value in use of the machinery is £198,000. and its fair value less cost to sell is £215,000. What amount should Bellding recognize as a loss on impairment?

(Multiple Choice)

4.8/5

(67)

Question 18

Under IFRS, if equipment is revalued to fair value, then:

(Multiple Choice)

4.8/5

(82)

Question 19

Which statement is false?

(Multiple Choice)

4.9/5

(66)

Question 20

Showing 1 - 20 of 141

Exam 12: Long-Term Operating Assets: Departures From Historical Cost

Explain the IFRS limitations on reversal of previously recognized impairment losses for property, plant, equipment and finite-life intangible assets.

Which of the following statements regarding long-term operating assets classified as held for sale or disposal is true?

U.S. GAAP does not permit subsequent reversals of impairment losses for indefinite-life intangible assets.

U.S. GAAP does not permit subsequent reversals of goodwill impairment losses.

Under the IFRS one-step impairment test, a long-term operating asset's recoverable value is its fair value or its value in use, whichever is lower.

Which of the following statements regarding IFRS impairment testing for goodwill is false?

List four impairment indicators for long-term operating assets.

Firms associate goodwill with the group of net assets at the level of the operating segment or one level below the operating segment.

IFRS associates goodwill with a cash-generating unit.

Impairment testing is conducted annually for both limited-life and indefinite-life intangible assets.

One example of an impairment indicator for property, plant and equipment is a significant adverse change in legal factors that affect the value of an asset or asset group.

Long-term operating assets can be reported on the balance sheet at fair value instead of historical cost. Does this statement apply to IFRS and U.S. GAAP?

List the four key steps related to accounting for impairments of long-term operating assets.

Which of the following disclosure requirements for long-term asset impairment apply to IFRS but not to U.S. GAAP?

U.S. GAAP allows for subsequent reversals of write-downs for long-term operating assets held for use in operations.

In 2011, Bellding Inc. acquired production machinery at a cost of £638,000, which now has accumulated depreciation of £384,000. The value in use of the machinery is £198,000. and its fair value less cost to sell is £215,000. What amount should Bellding recognize as a loss on impairment?

Under IFRS, if equipment is revalued to fair value, then:

Which statement is false?

The Financial Reporting Environment

Financial Reporting Theory

Judgment and Applied Financial Accounting Research

Review of the Accounting Cycle

Statements of Net Income and Comprehensive Net Income

Statements of Financial Position and Cash Flows and the Annual Report

Accounting and the Time Value of Money

Revenue Recognition

Extenssion: Ol Revenue Recognition Previous Standard

Short-Term Operating Assets: Cash and Receivables

Short-Term Operating Assets: Inventory

Long-Term Operating Assets: Acquisition, Cost Allocation

Operating Liabilities and Contingencies

Financing Liabilities

Accounting for Stockholders Equity

Investing Assets

Accounting for Income Taxes

Accounting for Leases

Extension: Ol Accounting for Leases Current Standard

Accounting for Employee Compensation and Benefits

Earnings Per Share

Accounting Corrections and Error Analysis

The Statement of Cash Flows

Filters