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27 Jun 2018

Obtain the relevant authoritative literature on the impairment or disposal of long-lived assets using the FASB Accounting Standards Codification at the FASB website (www.fasb.org). Indicate the Codification topic number that provides guidance on accounting for the impairment of long-lived assets.

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Sixta Kovacek
Sixta KovacekLv2
30 Jun 2018

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Codification Research Case

1-In light of the full disclosure principle, investors and creditors need to know the balances for assets, liabilities, and equity as well as the accounting policies adopted by management to measure the items reported in the balance sheet.

Instructions

If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and prepare responses to the following. Provide Codification references for your responses.

(a)

Identify the literature that addresses the disclosure of accounting policies.

(b)

How are accounting policies defined in the literature?

(c)

What are the three scenarios that would result in detailed disclosure of the accounting methods used?

(d)

What are some examples of common disclosures that are required under this statement?

Codification Research Case

2-At a recent meeting of the accounting staff in your company, the controller raised the issue of using present value techniques to conduct impairment tests for some of the company's fixed assets. Some of the more senior members of the staff admitted having little knowledge of present value concepts in this context, but they had heard about a FASB Concepts Statement that may be relevant. As the junior staff in the department, you have been asked to conduct some research of the authoritative literature on this topic and report back at the staff meeting next week.

Instructions

If your school has a subscription to the FASB Codification, go to http://aaahq.org/asclogin.cfm to log in and access the FASB Statements of Financial Accounting Concepts. When you have accessed the documents, you can use the search tool in your Internet browser to respond to the following items. (Provide paragraph citations.)

(a)

Identify the concept statement that addresses present value measurement in accounting.

(b)

What are some of the contexts in which present value concepts are applied in accounting measurement?

(c) Provide definitions for the following terms:

1.Best estimate.

2.Estimated cash flow (contrasted to expected cash flow).

3.Fresh-start measurement.

4.Interest methods of allocation.

At the next management team meeting, Roxy & Harleyexpress some concern that any new equipment acquired toreplace the old equipment may become obsolete within the next threeto six years. Roxy & Harley want to know how the accountingrules for impairments would apply to any new equipment. Researchthe accounting literature (e.g., access the FASB Codification), todetermine the official guidance for information on impairmentsincluding the timing and calculation of the amount. Be sure youdescribe the reasons for recording impairments and how recordingany impairment actually can benefit the financial statements.

(e) You seem toremember that asset impairments could be used to “manageearnings.” Search the Internet and accounting journals forrecent stories in the business press about asset impairments andearnings management. Prepare a memo explaining how earnings mightbe managed through asset impairments.

Information regarding the impairment of goodwill that specifically concerns Simon is related to the acquisition of Pizazz, Inc., (the leading manufacturer of hair color products in the U.S.) that occurred in 2016 and resulted Salon Solutions recording $125 million in goodwill related to this acquisition in 2016. After acquisition, Pizazz Inc. continues to operate as a separate company and is considered a reporting unit. At the end of 2017, events and circumstances indicated that it is “more likely than not” that the fair value of Pizazz is less than book value. Simon determined the following information pertaining to Pizazz: As of 12/31/17 the book value of Pizazz’s net assets is $560 million, including the $125 million in goodwill. Pizazz’s estimated fair value as of 12/31/17 is $445 million, and the fair value of all its identifiable tangible and intangible assets, excluding goodwill, is estimated to be $425 million. These estimates were based on prices of comparable businesses. Your firm has delegated to you the task of determining the treatment of goodwill impairment.works cited page)

1. What is the current standards that govern US GAAP treatment of goodwill?

2. What is the current standards that govern US GAAP treatment of goodwill impairment and how to determine the amount of the goodwill impairment loss using the data pertaining to Salon Solutions given above.

3. Prepare the journal entry to record the impairment loss and explain how this loss is reported on the income statement (ignore income tax effects). In addition, if an impairment loss is recorded, indicate the amount of goodwill to be reported on the statement of financial position as of 12/31/17.

4. Whether early adoption of the Financial Accounting Standards Board Accounting Standards Update (FASB ASU) 2017-04 is allowed, and if so, how to determine the amount of the goodwill impairment loss based on early adoption of FASB ASU 2017-04 using the goodwill data pertaining to Salon Solutions given above. Also, if applicable, prepare the journal entry to record the impairment loss per FASB ASU 2017-04 should Salon Solution’s owner elect to adopt FASB ASU 2017-04 early. In addition, if an impairment loss is recorded, indicate the amount of goodwill to be reported on the statement of financial position as of 12/31/17.

5. The required financial statement note disclosures regarding goodwill impairment assuming Salon Solution’s President elects to adopt FASB ASU 2017-04 early (ignore income tax effects).

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