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Exam 10: Applications of Fair Value to Non-Current Assets

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Question 21

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Reid Resch is a maker of instruments for measuring weight, temperature, pressure, and so on. Due to the increasing use of digital instruments, one of the company production lines based on analogue technology is potentially impaired. Management has produced the following information relating to this production line, which is considered to be a cash generating unit: $\begin{array} { | l | r | } \hline \text { Original cost } & \$ 4,940,000 \\\hline \text { Accumulated depreciation } & 1,800,000 \\\hline \text { Fair value } & 3,270,000 \\\hline \text { Costs to sell } & 48,000 \\\hline \text { Risk adjusted cost of capital } & 5 \% \\\hline & \\\hline \text { Incremental cash flows for } & \$ 200,000 \\\hline 2020 & 1,200,000 \\\hline 2021 & 1,200,000 \\\hline 2022 & 1,000,000 \\\hline 2023 & 0 \\\hline 2024 \text { and thereafter } & 5 \\\hline\end{array}$ Required: Determine whether the production line is impaired, and if so, the amount of the impairment.

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Question 22

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How should a revaluation entry generally not be booked?

A) Using the "proportional method."
B) Adjusting the difference between fair value and carrying value to profit and loss.
C) Adjusting the carrying value and accumulated depreciation by the same percentage so that the carrying amount equals fair value after revaluation.
D) Restating the gross carrying amount to fair value and removing the accumulated depreciation.

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Question 23

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Based on the following information, what is the net book value of the asset on the December 31, 2021 balance sheet? $\begin{array} { | l | r | } \hline \text { Cost } & \$ 750,000 \\\hline \text { Accumulated depreciation } & 400,000 \\\hline \text { Value in use (sum of discounted cash flows) } & 300,000 \\\hline \text { Fair value } & 200,000 \\\hline \text { Disposal costs } & 15,000 \\\hline\end{array}$

What is the "recoverable amount"?

Explain how an impairment loss is recorded for non-current assets.

Which is not a source of information that would be used as an indicator of impairment?

Explain why non-current assets held for sale are valued at fair value less costs to sell rather than at their value in use.

Company One purchased land for $900,000 some years ago. Fair value was $450,000 at the beginning of this year and $340,000 at the end of this year. Prepare the journal entry to record this year's revaluation adjustment.

Due to increased competition from low-cost foreign manufacturers, Genevive's Toy Company is experiencing significant declines in sales. The company produces its toys from an assembly line. The equipment in this assembly line has not been previously revalued or impaired. For the year ending December 31, 2019, the controller gathered the following information relating to the assembly line equipment, which is considered to be a cash generating unit: $\begin{array} {| l | r | } \hline \text { Original cost } & \$ 6,379,000 \\\hline \text { Accumulated depreciation } & 2,400,000 \\\hline \text { Fair value } & 3,247,000 \\\hline \text { Costs to sell } & 145,000 \\\hline \text { Risk adjusted cost of capital } & 6 \% \\\hline & \\\hline \text { Incremental cash flows for } & \\\hline 2020 & \$ 1,100,000\\\hline 2021 & 1,000,000 \\\hline 2022 & 800,000 \\\hline 2023 & 900,000 \\\hline 2024 \text { and thereafter } & 0 \\\hline\end{array}$ Required: Determine whether the assembly line is impaired, and if so, the amount of the impairment.

What impairment, if any, exists on this product line? $\begin{array} { | l | r | } \hline & \text { Product CDC } \\\hline \text { Original cost } & \$ 5,200,000 \\\hline \text { Accumulated depreciation } & 2,100,000 \\\hline \text { Fair value } & 4,500,000 \\\hline \text { oosts to sell } & 500,000 \\\hline \text { Value in use } & 4,300,000 \\\hline\end{array}$

How is income and expense recognized for biological assets under IFRS?

Which of the following is correct with respect to when the impairment test must be performed?

Wilson Inc wishes to use the revaluation model for this property: $\begin{array} { | l | r | } \hline & \text { Before Revaluation } \\\hline \text { Building Gross Value } & 120,000 \\\hline \text { Building Accumulated Depreciation } & 40,000 \\\hline \text { Net carrying value } & 80,000 \\\hline\end{array}$ The fair value for the property is $140,000. Assuming this is the first year of using the revaluation model, which of the following amounts will be booked?

What is a "disposal group"?

Based on the following information, what is the net amount that this equipment should be reported at in the balance sheet at December 31, 2021? $\begin{array} { | l | r | } \hline \text { Cost } & \$ 500,000 \\\hline \text { Accumulated depreciation } & 230,000 \\\hline \text { Value in use (sum of discounted cash flows) } & 250,000 \\\hline \text { Fair value } & 240,000 \\\hline \text { Disposal costs } & 10,00 \\\hline\end{array}$

Which statement describes the "historical cost model"?

The following information is available about George Inc's discontinued operations: $\begin{array} { | l | r | } \hline \text { Profit attributable to discontinued operations (before taxes) } & \$ 1,500,000 \\\hline \text { Net gain on disposal } & 200,000 \\\hline \text { Income taxes attributable to discontinued operations } & 100,000 \\\hline\end{array}$ What single amount will be presented on George's statement of comprehensive income?

Which statement is not correct?

Smith Inc wishes to use the revaluation model for this property: $\begin{array} { | l | r | } \hline & \text { Before Revaluation } \\\hline \text { Building Gross Value } & 120,000 \\\hline \text { Building Accumulated Depreciation } & 40,000 \\\hline \text { Net carrying value } & 80,000 \\\hline\end{array}$ The fair value for the property is $150,000. Assuming this is the first year of using the revaluation model, what amount would be booked to the "other comprehensive income" account if Smith chooses to use the proportional method to record the revaluation?

Grover Inc wishes to use the revaluation model for this property: $\begin{array} { | l | r | } \hline & \text { Before Revaluation } \\\hline \text { Building Gross Value } & 160,000 \\\hline \text { Building Accumulated Depreciation } & 40,000 \\\hline \text { Net carrying value } & 120,000 \\\hline\end{array}$ The fair value for the property is $140,000. Assuming this is the first year of using the revaluation model, what amount would be booked to profit and loss if Grover chooses to use the elimination method to record the revaluation?