Reading 37: Long-lived Assets-LOS h 习题精选 2011, equipment, property, company, assets

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Session 9: Financial Reporting and Analysis: Inventories, Long-lived Assets, Income Taxes, and Non-current Liabilities
Reading 37: Long-lived Assets

LOS h: Discuss the impairment of property, plant, and equipment, and intangible assets.

 

 

Marcel Inc. is a large manufacturing company based in the U.S. but also operating in several European countries. Marcel has long-lived assets currently in use that are valued on the balance sheet at $600 million. This includes previously recognized impairment losses of $80 million. The original cost of the assets was $750 million. The fair value of the assets was determined in a professional appraisal to be $690 million. Assuming that Marcel reports under U.S. GAAP, the new appraisal of the assets’ value most likely results in:

A) no change to Marcel’s financial statements.

B) a $90 million gain in other comprehensive income.

C) an $80 million gain on income statement and $10 million gain in other comprehensive income.

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Under U.S. GAAP, long-lived assets are reported on the balance sheet at depreciated cost less any impairment losses ($750 million original cost less $70 million accumulated depreciation and less $80 million impairment loss, for a net amount of $600 million). Increases are generally prohibited with the exception of assets held for sale. Since these assets are currently in use, this exception does not apply. Therefore, Marcel may not revalue the assets upward.

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Under U.S. GAAP, an asset is impaired when:

A) accumulated depreciation plus salvage value exceeds acquisition costs.

B) the present value of future cash flows exceeds the carrying amount of the asset.

C) the firm can no longer fully recover the carrying amount of the asset.

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An asset is impaired if its future cash flows (undiscounted) are less than its carrying value.

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An impairment write-down is least likely to decrease a company's:

A) assets.

B) debt-to-equity ratio.

C) future depreciation expense.

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An impairment write-down reduces equity and has no effect on debt. The debt-to- equity ratio would therefore increase.

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As part of a major restructuring of business units, General Security (an industrial conglomerate operating solely in the U.S. and subject to U.S. GAAP) recognizes significant impairment losses. The Investor Relations group is preparing an informational packet for shareholders, employees, and the media. Which of the following statements is least accurate?

A) The write-downs are reported as a component of income from continuing operations.

B) Write-downs taken on asset values can be reversed in later years if market conditions improve.

C) During the year of the write-downs, retained earnings and deferred taxes will decrease.

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Impairments cannot be restored under U.S. GAAP. Both remaining statements are correct.

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An analyst determined the following information concerning Franklin, Inc.’s stamping machine:

• Acquired seven years ago for $22 million
• Straight line method used for depreciation
• Useful life estimated to be 12 years
• Salvage value originally estimated to be $4 million

The stamping machine is expected to generate $1,500,000 per year for five more years and will then be sold for $1,000,000. Under U.S. GAAP, the stamping machine is:

A) impaired because its carrying value exceeds expected future cash flows.

B) not impaired.

C) impaired because expected salvage value has declined.

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The carrying value of the stamping machine is its cost less accumulated depreciation. Depreciation taken through 7 years was ($22,000,000 - $4,000,000) / 12 × 7 = $10,500,000, so carrying value is $22,000,000 - $10,500,000 = $11,500,000. Because the $11,500,000 carrying value is more than expected future cash flows of (5 × $1,500,000) + $1,000,000 = $8,500,000, the stamping machine is impaired.