FARE 10 AROs and troubled debt

Question 1

Asset Retirement Obligation

Answer 1

liability associated with the retirement of a tangible long-lived asset.

Question 2

Asset Retirement Cost

Answer 2

the amount capitalized (asset) that increases the carrying amount of the long-lived asset when a liability for an ARO is recognized.

Question 3

Asset Retirement Cost

journal entry

Answer 3

Dr Asset retirement cost (asset)

Cr Asset retirement obligation (liability)

Question 4

Subsequent measurement

Accretion and deprectiation

Answer 4

1. Accretion expense - the interest exp every year on the ARO
   Dr Accretion exp
   Cr Asset retirement obligation (liability)
2. Depreciation expense - every year on the ARC (asset)
   Dr Depreciation exp
   Cr Accumulated depreciation

Question 5

Accounting and reporting by DEBTORS

Answer 5

a. Transfer of assets
b. Transfer of equity interest
c. Modification of terms
d. Combination type

Question 6

Accounting and reporting by DEBTORS

a. Transfer of assets

Answer 6

a. Transfer of assets
1. Recognize ordinary gain/loss on:
FV asset transferred
- NBV assets transferred
= Ordinary gain/loss
2. Recognize (possible extraordinary) gain on:
Carrying amount of the payable
-FV asset transferred
= Gain (possible extraordinary)

Question 7

Accounting and reporting by DEBTORS

b. Transfer of equity interest

Answer 7

a. Transfer of equity interest
1. Recognize (possible extraordinary) gain on:
Carrying amount of the payable
- FV equity transferred
= Gain (possible extraordinary)

Question 8

Accounting and reporting by DEBTORS

c. Modification of terms

Answer 8

The debtor accounts for the effects of the restructuring prospectively.

1. Total future cash payments - the principal and any accrued interest at the time of the restructuring that continues to be payable by the new terms.
2. Interest exp - a constant effective date
3. Future payments - when the total future cash payments are less than the carrying amount, the debtor should reduce the carrying amount and recognize the difference as a gain. When there are indeterminate future payments, or any time the future payments might exceed the carrying amount, the debtor recognizes no gain.

Question 9

Accounting and reporting by DEBTORS

d. Combination type

Answer 9

FV of asset/equity reduces the carrying amount of the payable. The difference recognized as loss/gain.

Question 10

Accounting and reporting by CREDITORS

Answer 10

a. Recognition of impairment

b. Measurement of impairment

Question 11

Accounting and reporting by CREDITORS

a. Recognition of impairment

Answer 11

A loan is impaired if it is probable that the creditor will be unable to collect all amounts due under the original contract when due.

Question 12

Accounting and reporting by CREDITORS

b. Measurement of impairment
1. Receipt of assets or equity

Answer 12

1. Receipt of assets or equity - when the creditor receives either assets or equity as full settlement of a receivable, these are accounted for at their fair value at the time of the restructuring. The excess of the recorded receivable over the fair value of the asset receivable is recognized as an ordinary loss.

Question 13

Accounting and reporting by CREDITORS

b. Measurement of impairment
2. Modification of terms

Answer 13

2. Modification of terms - the impairment is recorded by creating a valuation allowance with a corresponding charge to bad debt expense
   Dr Bad debt exp
   Cr Allowance for credit loss