FAR 15 Flashcards
Where are impairment losses on assets held for use recognized?
They are recognized in income from continuing operations
dr. impairment loss
cr. accumulated depreciation
impairment loss - I/S
accumulated depreciation - balance sheet - reducing the carrying value of the asset
In a non-Monetary exchange - when does a transaction have commercial substance
A transaction has commercial substance when:
The asset acquired will significantly change the cash flows to the company
or
If the asset acquired in the exchange is significantly different than the item exchanged
When is a non-Monetary exchange LACK commercial substance
- If the asset you get doesn’t really change anything - then it lacks commercial substance.
An exchange WITH commercial substance
When the transaction WITH commercial substance - you treat it as if the asset was sold at Fair Value
ABC exchanges equip with DEF:
ABC’s asset has book value of $80,000 and FV of $100,000
ABC also gives DEF $30,000 as part of the exchange
ABC would recognize a gain of $20,000
The gain = the difference between the fair value and the book value
ABC
dr. Equipment 130,000
dr. accumulated depreciation 20,000
cr. gain 20,000
cr. equipment- old 100,000
cr. cash 30,000
In a non-Monetary exchange WITH commercial substance - How do you value the new asset
- The value of the new asset should be its Fair Value and Gains and Losses should be recognized on the exchange
- If neither asset’s FV can be determined:
then no gain or loss is recognized and the new asset is recorded at the book value of the old asset plus cash paid or less cash received
What are the rules of valuing a new asset
The value of the property received is equal to the fair value given up
What do you do when valuing a new asset when there is NO cash involved
- if no cash is involved then both parties value the incoming asset at the fair value of the asset they exchanged
What do you do when valuing a new asset when there is YES cash involved
- The giver of the cash adds the amount to the fair value given up
- The receiver of the cash subtracts the cash from their fair value given up
Example Non-Monetary Exchange - WITH commercial substance
ABC exchange with DEF ABC: book value: $80,000 (120K cost and acc deep $40) FV: $100 Gives cash: $30K value given up (FV +cash) 130K
DEF:
Book Value: $110 (150K cost and acc deep 40K)
FV: 120K
ABC JE:
dr. equip NEW 130,000 (value given up)
dr. Acc Depr 40,000
cr. equip OLD 120,000
cr. CASH 30,000
cr. Gain on exchange 20,000
DEF JE:
dr. Equpment NEW 90,000 (FV 120 - cash received 30K)
dr. accum. depre 40,000
dr. CASH 30,000
cr. Equipment OLD 150,000
cr. Gain on exchange 10,000
Exchanges WITHOUT commercial substance - Loss
If there is a loss - record the new asset at its Fair value
Exchanges WITHOUT commercial substance - GAIN with and without cash
- If there is a gain NO Cash:
NO gain is recognized
Record the new asset at the book Value of the asset exchanged + any cash you paid
-If there is a gain and you received cash - recognize the gain in the proportion to the cash received.
Record the new asset is recorded at t FV less the unrecognized portion of the gain
What do you do if the proportion of cash received is more than 25%
Record the gain in fluent the asset acquired at FV
When can you classify an asset as Held for Sale
- Management has an active plan to sell the asset
- The sale is highly probable in a year
- The asset is available for sale in its current condition
- The company is marketing it for sale
How are assets he’d for sale or disposal kept on the books?
- They are kept on the books at lower of the carrying amount or the fair valueless any costs to sell
- Once listed as held-for-sale - the asset is no longer depreciated
- Listed under “Other Assets” on B/S - non current asset -
- Not included with PP&E
What do you do if Carrying Value is greater than fair value less costs to sell
You write down the value and a loss is recognized:
Assets Held for Sale:
Fair Value - cost to sell = NRV
If Carry Value > NRV - a loss that you will record
If Carrying Value < NRV - you can write up and record a gain but only to the extent to the extent of the losses previously recognized in write downs
Example; you have an item in held for sale (meets all of the criteria) The equipment has a carrying value of $200,000, a FV of $180,000 and cost to sell of $10,000.
Based on these facts - ABC would write down the equipment to $170,000 and recognize a loss of $30,000
If a year later the FV has risen to $220,000
ABC can recognize a gain, but only to the extent of the previous loss - So $30,000 gain and Held for Sale equipment is carried at $200,000
