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Chapter 11: Q11-4IFRS (page 607)

Explain how gains or losses on impaired assets should be reported in income.

Short Answer

Expert verified

Answer

Gains and losses on impaired assets are reported on “other income and expenses” in a financial statement.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Impairment

Impairment refers to a reduction of the market value of fixed or intangible assets,indicative of a reduction in the quantity, quality, or market value of an asset. The idea is that an asset should never be reported in a business's financial statements above the maximum amount that could be recouped through its sale.

02

Explaining the gains or losses on the impaired asset that should be reported in income.

Impairment losses are often included in the "Other income and cost" line as a part of operating income. Impairment losses (and the recovery of impairment losses) are comparable to other operational costs. As a result, profits (loss recoveries) on long-lived assets should be included in an operating income in the "Other income and cost" column of an income statement.

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Most popular questions from this chapter

(Depreciation Computations, SYD) Five Satins Company purchased a piece of equipment at the beginning of 2014. The equipment cost \(430,000. It has an estimated service life of 8 years and an expected salvage value of \)70,000. The sum of-the-years’-digits method of depreciation is being used. Someone has already correctly prepared a depreciation schedule for this asset. This schedule shows that \(60,000 will be depreciated for a particular calendar year.

Instructions

Show calculations to determine for what particular year the depreciation amount for this asset will be \)60,000.

(Depreciation for Fractional Periods) On March 10, 2019, Lost World Company sells equipment that it purchased for \(192,000 on August 20, 2012. It was originally estimated that the equipment would have a life of 12 years and a salvage value of \)16,800 at the end of that time, and depreciation has been computed on that basis. The company uses the straight line method of depreciation.

Instructions

  1. (a) Compute the depreciation charge on this equipment for 2012, for 2019, and the total charge for the period from 2013 to 2018, inclusive, under each of the six following assumptions with respect to partial periods.
    1. Depreciation is computed for the exact period of time during which the asset is owned. (Use 365 days for base and record depreciation through March 9, 2019.)
    2. Depreciation is computed for the full year on the January 1 balance in the asset account.
    3. Depreciation is computed for the full year on the December 31 balance in the asset account.
    4. Depreciation for one-half year is charged on plant assets acquired or disposed of during the year.
    5. Depreciation is computed on additions from the beginning of the month following acquisition and on disposals to the beginning of the month following disposal.
    6. Depreciation is computed for a full period on all assets in use for over one-half year, and no depreciation is charged on assets in use for less than one-half year. (Use 365 days for base.)
  2. (b) Briefly evaluate the methods above, considering them from the point of view of basic accounting theory as well as simplicity of application.

(Depreciation Computations—Five Methods) Jon Seceda Furnace Corp. purchased machinery for \(315,000 on May 1, 2017. It is estimated that it will have a useful life of 10 years, salvage value of \)15,000, production of 240,000 units, and working hours of 25,000. During 2018, Seceda Corp. uses the machinery for 2,650 hours, and the machinery produces 25,500 units.

Instructions

From the information given, compute the depreciation charge for 2018 under each of the following methods. (Round to the nearest dollar.)

  1. Straight-line.
  2. Units-of-output.
  3. Working hours.
  4. Sum-of-the-years’-digits.
  5. Declining-balance (use 20% as the annual rate)

(Depletion Computations—Minerals) At the beginning of 2017, Aristotle Company acquired a mine for \(970,000. Of this amount, \)100,000 was ascribed to the land value and the remaining portion to the minerals in the mine. Surveys conducted by geologists have indicated that approximately 12,000,000 units of ore appear to be in the mine. Aristotle incurred \(170,000 of development costs associated with this mine prior to any extraction of minerals. It also determined that the fair value of its obligation to prepare the land for an alternative use when all of the mineral has been removed was \)40,000. During 2017, 2,500,000 units of ore were extracted and 2,100,000 of these units were sold.

Instructions

Compute the following.

  1. The total amount of depletion for 2017.
  2. The amount that is charged as an expense for 2017 for the cost of the minerals sold during 2017.

Cominsky Company purchased a machine on July 1, 2018, for \(28,000. Cominsky paid \)200 in title fees and county property tax of \(125 on the machine. In addition, Cominsky paid \)500 shipping charges for delivery, and \(475 was paid to a local contractor to build and wire a platform for the machine on the plant floor. The machine has an estimated useful life of 6 years with a salvage value of \)3,000. Determine the depreciation base of Cominsky’s new machine. Cominsky uses straightline depreciation.
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