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

All of the following are key steps related to accounting for impairments of long-term operating assets except ________.

When a long-term operating asset is impaired, the firm reduces the asset's carrying value on the balance sheet and recognizes the decline in value ________.

Smith Company is an IFRS reporter. After 3 full years of use, the Smith Company revalues equipment with a carrying value of $980,000 to its fair value of $1,200,000 using the accumulated depreciation elimination method. The original cost of the equipment is $1,400,000 and the equipment has a useful life of 10 years with no scrap value. Smith depreciates under the straight-line method. What is the new carrying value of the asset?

When assessing property, plant and equipment for impairment in asset groups, the firm groups assets at the lowest level of identifiable and independent cash flows.

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

IFRS requires an impairment test for goodwill at least annually.

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 \3 40,000 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 the 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 For the purposes of impairment testing, which long-term assets will be used in the calculation of the loss?

The method of accounting for the impairment of long-term assets depends upon the type of loss that occurs.

Regular Corp. has four divisions. One of them, Weeble Products, was acquired on January 1, 2016, for $80,000,000, and recorded goodwill of $7,000,000 as a result of that purchase. Weeble Products is considered to be a reporting unit. At December 31, 2017, Weeble Products had a fair value (including goodwill) of $38,000,000, and the book value of the division's net assets (including goodwill) was $46,000,000. What amount of loss on impairment of goodwill should Regular record in 2017?

An impairment loss for goodwill is calculated as the difference between ________.

Under IFRS, impairment tests are more frequent for PPE and finite-life intangible assets than for indefinite-life intangible assets.

Impairment of a long-term operating asset occurs when ________.

On December 31, 2018, Plattsville Plastics decided to dispose of an extrusion machine. The original cost was $490,000 and accumulated depreciation was $315,000. On December 31, 2018, the fair value of the machine was determined to be $130,000. Which of the following would be included in a related adjusting entry on December 31, 2018.

Following IFRS, annual impairment tests for goodwill of all applicable business units must be completed on the same measurement date.

Explain how gains or losses on impaired long-term operating assets should be reported in income. How should impairment losses be recorded?

Visdant Company provided the following information: Fair value of Visdant, including goodwill \ 2,100,000 Value in use of Visdant, \ 2,000,000 Book value of Visdant net assets, excluding goodwill \ 3,000,000 Add: Carrying value of goodwill \ 600,000 Carrying value of Visdant, including goodwill \ 2,400,000 The qualitative assessment of goodwill is completed and it is more likely than not that goodwill is impaired. Describe the process for determining if Visdant needs to record a goodwill impairment loss and prepare any required journal entries. Visdant follows IFRS.

Briefly describe the process for determining impairment losses on property, plant, and equipment and finite-life intangible assets.

The accounting for long-term operating assets held for sale or disposal under U.S. GAAP and IFRS is substantially identical.

IFRS requires disclosure of whether the recoverable amount of an impaired asset was fair value less selling costs or value in use.

Regular Corp. has four divisions. One of them, Zolo Products, was acquired on January 1, 2016, for $400,000,000, and recorded goodwill of $50,000,000 as a result of that purchase. At December 31, 2016, Zolo Products had a fair value (including goodwill) of $379,000,000. The carrying value of the company's net assets at December 31, 2016 was $356,000,000 (including goodwill). What amount of loss on impairment of goodwill should Regular record in 2016?