Income Statement

Question 1

How is

1) Loss from operations
2) Impairment loss

computed for Discontinued Operations?

Answer 1

Conglomeration would include all 12 months of operating losses in its Year 1 financial statements, not as of the date management committed to a plan to sell.

Conglomeration would only consider the Year 1 loss and would not include the combined loss on operations for the Year 2 interim period or the actual loss on disposal.

Impairment loss on assets is also included.

Question 2

How are R&D expenses for successful and unsuccessful patents treated? Under US GAAP and Under IFRS.

Answer 2

Under U.S. GAAP
The entire R&D should be expensed because U.S. GAAP requires that R&D expenditures be expensed.

Under IFRS
All of the research and development costs related to the unsuccessful product lines must be expensed. The research costs related to the product that was successfully patented must also be expensed because all research costs are expensed under IFRS. Development costs will most likely be capitalized because they related to a successfully patented product and development costs can be capitalized under IFRS.

Question 3

What are the elements of OCI and is it presented net of tax?

Answer 3

1) Effective portion of unrealized losses on cash flow hedge derivatives
2) Unrealized losses on marketable debt securities classified as AFS
3) Foreign currency translation gain
4) Pension funded status adjustment

Presented net of tax always

Question 4

How is impairment loss calculated under IFRS?

Answer 4

Under IFRS:

Step 1: Calculate the Recoverable Amount.

The recoverable amount is the greater of the asset’s fair value less costs to sell and the asset’s value in use (PV of future cash flows).

Step 2: Impairment loss is recorded for the excess of the carrying value of a fixed asset over its recoverable amount.

Question 5

How is impairment loss calculated under US GAAP?

Answer 5

Under U.S. GAAP, impairment analysis begins with a test for recoverability in which the net carrying value of the asset is compared to the undiscounted cash flows expected from the asset.

Impairment is a two-step process, the first of which is to determine if impairment exists, and the second of which is to measure the loss.

To determine if an impairment loss exits, we compare the undiscounted cash flows from the machine to the carrying amount of the machine.

The amount of the impairment loss is the difference between the fair value of the machine and its carrying amount.