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ACCTG 101 Lecture Notes - Lecture 12: Income Statement, Increment And Decrement Operators, Impaired Asset

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harlequinmink794
18 Dec 2020
School
GCC
Department
Accounting
Course
ACCTG 101
Professor
mares

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Document Summary

When the carrying value of an asset must be reduced to recoverable amount. Whichever is higher: (assets fair value costs to sell it) or an assets value in use (present value of future cash flows from asset) Each class on non-current assets must be measured by cost model or revaluation model. After recognition of asset, carrying value = cost accumulated depreciation or impairment losses. If carrying amount> recoverable amount asset is considered impaired, asset written down to recoverable amount. Dr impairment loss, cr accumulate depreciation equipment. Amount for which an asset could be exchange between knowledgeable willing parties in an arm"s length transaction. Increment goes directly into shareholders equity section of balance sheet under revaluation surplus. Example land revalued from mill to mill: Dr land 1mill, cr revaluation surplus 1 mill. Decrement recognised as expense in income statement, affecting profit. Example land revalued from mill to mill:

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Related Questions

Impairment of assets Foodie Ltd has two separate cash generatingunits, ‘Fizzy Drinks’ and ‘Ice creamery’. At 30 June 2018, thecarrying amounts of the assets of the units, valued pursuant to thecost model, are as follows: Fizzy Drinks Ice creamery $ $ Cash18,000 14,000 Inventory 34,000 25,000 Fixtures and fittings 25,00035,000 Accumulated depreciation – fixtures and fittings (5,000)(10,000) Equipment 165,000 25,000 Accumulated depreciation –equipment (55,000) (15,000) Land and buildings 650,000 185,000Accumulated depreciation – buildings (25,000) (6,000) Patent 25,000- Goodwill 40,000 15,000 Total 872,000 268,000 The inventory isrecorded at the lower of cost and net realisable value. The patenthas a fair value less costs to sell of $20,000. The land andbuildings of ‘Fizzy Drinks’ have a fair value less costs to sell of$620,000, and the land and buildings of ‘Ice creamery’ have a fairvalue less costs to sell of $175,000. On 30 June 2018, thedirectors of Foodie Ltd estimate that the fair value less cost tosell for ‘Fizzy Drinks’ and ‘Ice creamery’ amount to $750,000 and$260,000 respectively. The value in use of ‘Fizzy Drinks’ and ‘Icecreamery’ are estimated at $810,000 and $240,000 respectively.Required: Determine the impairment loss (if any) to be recognisedby Foodie Ltd for each of its cash generating units as at 30 June2018, and determine how the impairment loss (if any) is to beallocated. Prepare the journal entries to account for theimpairment loss/losses (if any). Show all workings and providereferences to the relevant accounting standard to support youranswer. Marking Guide - Question 5 Max. marks awarded Applicationof the impairment test and allocation of impairment losses wherenecessary, with explanations, workings and references 12 Journalentries 4 Rationale back to top This assessment task will assessthe following learning outcome/s: be able to prepare basicfinancial statements for reporting entities. be able to discusscritically and comprehensively the statutory and professionalrequirements upon which published financial statements are based.be able to explain the form and content of financial statements. beable to interpret and apply generally accepted accountingprinciples and specific financial reporting standards relating toconcepts of recognition, measurement, disclosure, revaluation andimpairment of key financial statement elements



1. If a fixed asset with an original cost of $18,000 andaccumulated depreciation of $12,000 is sold for $15,000, thecompany must (Points : 2)
recognize a loss on the income statement under otherexpenses.
recognize a loss on the income statement under operatingexpenses.
recognize a gain on the income statement under otherrevenues.
Gains and losses are not to be recognized upon the sell of fixedassets.


2. If a fixed asset is sold and the book value is less than cashreceived, the company must (Points : 2)
recognize a loss on the income statement under otherexpenses.
recognize a loss on the income statement under operatingexpenses.
recognize a gain on the income statement under otherrevenues.
Gains and losses are not to be recognized upon the sell of fixedassets.


3. Depreciable cost equals (Points : 2)
cost less accumulated depreciation.
book value less residual value.
cost less residual value.
market value less residual value.


4. Goodwill is (Points : 2)
amortized similar to other intangibles.
only written down if an impairment in value occurs.
charged to expense immediately.
amortized over 40 years or its economic life, whichever isshorter.


5. Expenditures that add to the utility of fixed assets for morethan one accounting period are (Points : 2)
committed expenditures.
revenue expenditures.
current expenditures.
capital expenditures.


6. A company purchased an oil well for $25 million with a residualvalue of $500,000. It is estimated that 10 million barrels can beextracted from the well. Determine depletion expense assuming 3million barrels are extracted and sold. (Points : 2)
$7,350,000
$7,500,000
$5,000,000
$7,650,000


7. Book value is defined as (Points : 2)
current market value less residual value.
cost less residual value.
current market value less accumulated depreciation.
cost less accumulated depreciation.


8. Which of the following expenditures would NOT be included in thecost of an asset? (Points : 2)
Freight costs
Vandalism
Sales tax
Surveying fees


9. To measure depreciation, all of the following must be knownEXCEPT (Points : 2)
market value.
residual value.
historical cost.
estimated life.


10. A capital expenditure would appear on the (Points : 2)
income statement under operating expenses.
balance sheet under fixed assets.
balance sheet under current assets.
income statement under other expen

Read the 2015 annual report of Air France – KLM and answer the 20 questions asked regarding the accounting issues. Link is provided below:

http://www.airfranceklm.com/sites/default/files/publications/afkl_registration_doc_2015.pdf

1. Air France-KLM reports ‘Consolidated statement of recognized income and expenses’ for the year ended December 31, 2015. If this statement was a U.S. GAAP statement, what would be the title of this statement?

a. Consolidated statement of total net income

b. Consolidated statement of other comprehensive income

c. Consolidated statement of comprehensive income

d. Consolidated statement of recognized net income

2. What method does Air France-KLM use for the Statement of Cash Flows?

a. Indirect method

b. Direct method

c. Gross method

d. Net method

3. The basic and diluted earnings per share for the year ended December 31, 2015, indicates that Air France-KLM has:

a. no convertible debts.

b. some dilutive securities.

c. no preferred stocks.

d. some treasury stocks.

4. What method is used to account for investments in companies over which Air France-KLM can ‘exercise significant influence on financial and operating policy decisions?’

a. Cost method

b. Liability method

c. Equity method

d. Fair value method

5. Sale of passenger tickets is accounted for at the time of ticket sale as:

a. Sales revenue

b. Deferred revenue

c. Contingent asset

d. No recognition

6. How does Air France account for business combination costs other than those related to the issuance of debt or equity securities?

a. Expensed as incurred

b. Capitalized as incurred

c. Included in goodwill

d. Used to offset fair value of the acquisition

7. Which of the following is not an ‘accumulated other comprehensive income’ item among those reported in the ‘reserves and retained earnings’ in the 2015 consolidated balance sheet of Air France-KLM?

a. Available for sale securities reserves.

b. Derivatives reserves.

c. Legal reserves.

d. Pension defined benefits reserves.

8. What is the carrying amount of investments in debt and equity securities that are classified as available-for-sale?

a. Fair value Cost

b. Amortized cost

c. Lower of cost or market

9. Inventories are carried at:

a. The lower of the first-in-first-out cost or net realizable value.

b. The first-in-first-out cost.

c. The lower of the weighted-average cost or net realizable value.

d. The weighted-average cost.

10. Air France-KLM classifies its frequent flyer programs as:

a. Noncurrent liability

b. Current liability

c. Current asset

d. Other debt

11. The followings are included in Air France-KLM’s intangible assets, except for:

a. Trademarks

b. Leased aircraft

c. Customer relationships

d. Slots for takeoff and landing

12. Air France-KLM reports bank overdrafts as:

a. A contra account to cash and cash equivalents.

b. A current liability.

c. An expense.

d. A bank deposits in transit.

13. Which method does Air France-KLM use to record depreciation expense for its flight equipment?

a. The activity-based method.

b. The sum-of-years’-digit method.

c. The straight-line method.

d. The group method.

14. Which accounting standards does Air France-KLM use?

a. U.S. GAAP

b. French GAAP

c. Netherlands GAAP

d. International Financial Reporting Standards

15. As of December 31, 2015, what assets are held for sale?

a. Land

b. Aircraft

c. Equipment

d. Buildings

16. Which of the following is included in ‘income from operating activities’ but not in ‘income from current operations?

a. Sale of aircraft equipment

b. Research and development costs

c. Bad debt expense

d. Interest revenue

17. Which of the following is not true about accounting treatment for the overhaul cost of major airframe and engine?

a. The cost is treated as separate asset component.

b. The cost is capitalized.

c. The cost is depreciated over the remaining useful life.

d. The cost is expensed as incurred.

18. How are financial assets accounted for if the Air France-KLM intends to sell them in the near future to realize capital gains?

a. At fair value with fair value changes recognized in the current period profit and loss

b. At fair value with fair value changes recognized as other comprehensive income

c. At cost with no recognition of fair value changes

d. At amortized cost with no recognition of fair value changes

19. Which of the following is not true about impairment test?

a. Tangible fixed assets, intangible assets, goodwill, and other assets with indefinite useful life are subject to an impairment test.

b. The impairment test is done at least once a year.

c. Recoverable value is the lower of the net realizable value and value in use.

d. The value in use is determined according to the discounted future cash flow method.

20. Which of the following is not an ‘other non-current income and expenses’ item?

a. Restructuring costs

b. Gains and losses on disposal of shares available for sale

c. Gains and losses on disposal of subsidiaries and affiliates

d. Gains and losses on sale of trading securities