Case Solutions

Question 1

What are the criteria for Assets to be classified as Held for Sale

Answer 1

• All of the following have to be met
  1) Management commits to a plan to sell the asset
  2) Asset is available for immediate sale in its present
  condition
  3) An active program to locate the buyer has been initiated
  4) Sale is probable, transfer of asset will qualify for
  recognition
  5) Asset is being actively marketed at a reasonable price
  6) Changes to the plan are unlikely, including withdrawal

Question 2

When should an impairment loss be recognized?

Answer 2

• Only if the carrying amount of a long lived asset is not
  recoverable and exceeds its fair value
• Not recoverable if it is greater than the sum of the
  discounted cash flows from the remaining use and the
  disposal amount of the asset
• Amount is the difference between the carrying value and
  fair value (discounted cash flows)

Question 3

When should you test for Recoverability?

Answer 3

• Whenever events or changes in circumstances indicate
  that its carrying amount may not be recoverable
• Examples
  
  • Significant change in how an asset is used or its
    physical condition
  • More likely than not that an asset will be sold or
    disposed of significantly before the end of its useful life

Question 4

What’s an important factor to remember when grouping assets?

Answer 4

• Assets are to be grouped with other assets at the lowest
  level for which identifiable cash flows are largely
  independent of cash flows of other assets

Question 5

What is the definition of a Liability?

Answer 5

• Future Sacrifice
• Past Event / Obligation HAS Occurred
• Probable

Question 6

What is the definition of a Loss Contingency?

Answer 6

• Event has occurred
• Outcome is Uncertain
• Something will happen in future to resolve the uncertainty
• Resolving the uncertainty confirms amount owed

Question 7

What are the 3 probabilities or likelihoods associated with the Loss Contingency?

Answer 7

1) Remote - chance is slight
2) Reasonably Possible - more than remote / less than likely
3) Probable - events are likely to occur

Question 8

What 2 conditions are required to recognize the accrual accounting of a Loss Contingency?

Answer 8

1) Probable that an asset has been impaired or a liability as been incurred
2) The amount can be reasonably estimated