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

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%, what is the journal entry to record the loss?

A long-term asset that is retired from operations and held for disposal or sale is valued at ________.

IFRS disclosure requirements are identical to U.S. GAAP in every respect with respect to long-term asset impairment except requirements related to impairment recovery.

After an impairment loss is recorded for goodwill, what is the basis for the impaired asset?

If the company writes down the long-term operating asset in one period and still holds the asset in the next period, then the company cannot report an increase in value in the subsequent period.

After recognizing the impairment of property, plant and equipment, the firm carries the asset at its fair value less previously accumulated depreciation.

In 2011, Diller Company acquired production machinery at a cost of $860,000, which now has a book value of $380,000. The sum of undiscounted future cash flows from use of the machinery is $335,000, and its fair value is $290,000. a. Determine if an impairment loss has occurred. Explain. b. If an impairment loss has occurred, provide the journal entry to record the impairment loss.

One example of an impairment indicator for property, plant and equipment is a significant increase in the market price of an asset or asset group.

IFRS permits firms to waive the annual goodwill impairment test and instead utilize the prior year's test.

In 2010, Mennorah Corporation acquired production machinery at a cost of $490,000, which now has a book value of $200,000. The sum of undiscounted future cash flows from use of the machinery is $180,000, and it's fair value is $120,000. What amount should Mennorah recognize as a loss on impairment?

Asset grouping for impairment testing of long-term operating assets is similar under U.S. GAAP and IFRS.

Impairment testing for goodwill is the same as impairment tests for other indefinite-life assets.

For which of the following does U.S. GAAP permit recognition of recovery of impairment?

Describe the accounting treatment for a long-term asset that is retired from operations and held for disposal or sale.

In 2018, Mao Li Corporation determined that a production machine used in its operations was impaired and an impairment loss of HK$110,000 was recognized. In 2019, the fair value of the asset increased by HK$170,000 due to an unexpected resurgence in demand for the products the machine was designed to produce. How would the gain due to increase in fair value be recognized in 2019 under IFRS?

Under IFRS, long-term operating assets must be reported on the balance sheet at fair value instead of historical cost.

When testing property, plant, equipment, and finite-life intangible assets for impairment, a firm must assess them as individual assets.

Under IFRS, firms report a reversal of an impairment loss on long-term operating assets as other comprehensive income.

Companies must continue to depreciate or amortize long-term operating assets while holding them for sale or disposal.

U.S. GAAP requires that firms combine indefinite-life intangibles into an asset grouping if they are operated as a single asset.