300323 Flashcards
Carrying Amount (Book Value)
The carrying amount or book value is the net amount at which an item is reported in the financial statements of the enterprise. For a receivable, the FASB ASC Glossary indicates the carrying amount is the “face amount increased or decreased by applicable accrued interest and applicable unamortized premium, discount, finance charges, or issues costs and also an allowance for uncollectible amounts and other valuation accounts.”
For a payable, the FASB ASC Glossary indicates the carrying amount is the “face amount increased or decreased by applicable accrued interest and applicable unamortized premium, discount, finance charges, or issue costs.”
A state government condemned Cory Co.’s parcel of real estate. Cory will receive $750,000 for this property, which has a carrying amount of $575,000. Cory incurred the following costs as a result of the condemnation.
Appraisal fees to support a $750,000 value $2,500
Attorney fees for the closing with the state 3,500
Attorney fees to review contract to acquire
replacement property 3,000
Title insurance on replacement property 4,000
What amount of cost should Cory use to determine the gain on the condemnation?
$581,000
$584,000
$582,000
$588,000
$581,000
Only the costs which are directly associated with the condemned property should be included in the determination of the gain on the condemnation (i.e., the appraisal fee and closing attorney fee: $2,500 + $3,500 = $6,000).
Thus, the gain is calculated on the following total:
$575,000 Carrying value
+ 6,000 Direct costs of condemnation
$581,000
The costs associated with acquiring the replacement property will apply to the new property.
2244.03Property, plant, and equipment may be totally or partially destroyed by storm, fire, flood, or other similar causes. Damaged assets should be written down to their remaining value in use, if any, and a loss recognized in the current period.
Property, plant, and equipment may be totally or partially destroyed by storm, fire, flood, or other similar causes. Damaged assets should be written down to their remaining value in use, if any, and a loss recognized in the current period.
2244.04
Casualty losses: Property, plant, and equipment items are usually insured against casualty losses. A gain or loss should be recognized depending on whether the amount due from the insurer exceeds the carrying amount of the loss.
2244.05
Recognition of gain or loss: A gain or loss on the involuntary conversion (e.g., due to casualty, condemnation, theft) of a nonmonetary asset should be recognized even if the proceeds received as a result of the involuntary conversion (e.g., insurance settlement, condemnation award) are reinvested in a replacement nonmonetary asset. Removal and clean-up costs are used to determine the gain or loss recognized on the involuntary conversion. Incidental costs incurred in the acquisition of replacement property are capitalized as costs of acquiring the replacement property (i.e., they do not affect the gain or loss recognized on involuntary conversion).
FASB ASC 605-40-05-1
