Chapter 12 Quiz - Intermediate Accounting 2

Is the impairment test for​ tangible, long-term operating assets identical to the impairment test for intangible​ assets? Explain.

No. The impairment test used for​ tangible, long-term operating assets is different than the impairment test used for ​ indefinite-life intangible assets. The impairment tests used depend upon the type of asset. Different procedures and tests are used for each type of asset.

Are firms required to test goodwill acquired in a business combination for impairment on an annual​ basis? Explain.

No. U.S. GAAP requires an annual qualitative assessment of goodwill impairment or an annual quantitative impairment test. Goodwill must be​ assessed, if not quantitatively​ tested, on an annual basis for two reasons. Goodwill is not subject to amortization and is more likely to be overstated on the balance sheet and the future economic value of goodwill is significantly more uncertain than tangible plant assets or​ finite-life intangible assets.

Under​ IFRS, the impairment loss on equipment is the difference between the carrying value of the asset and​ ________.

The recoverable amount of the asset.

U.S. GAAP allows companies to make a qualitative evaluation annually to determine whether it is more likely than not that a reporting​ unit's goodwill is impaired.

True.

Which of the following is not an impairment indicator for​ property, plant and​ equipment?

A significant decrease in the purchase price of an asset or asset group scheduled to be acquired in the current period.

Devo Co. has an indefinite-ife intangible asset with a carrying value of​ $800,000. The undiscounted future cash flows expected to be realized from that asset total​ $828,000; the discounted cash flows are​ $578,000; and the fair value of the asset has been determined to be​ $647,000. What is the amount of the impairment loss to be​ recorded, if​ any?

Answer: $153,000 800,000-647,000=153,000 (Carry value - recoverable amount = Impairment Loss)

On December​ 31, Star Corp. had a reporting unit that had a book value of​ $950,000, including goodwill of​ $130,000. As part of the​ company's annual review of goodwill​ impairment, Star determined that the fair value of the reporting unit was​ $890,000. Star assigned​ $840,000 of the reporting​ unit's fair value to its assets and liabilities other than goodwill. What is the goodwill impairment loss to be reported on December 31 under U.S.​ GAAP?

Answer: $60,000 950,000-890,000=60,000 (Book value - recoverable amount = Loss on Impairment of goodwill)

In 2011, Zee Tee Inc. acquired production machinery at a cost of $640,000, which now has a accumulated depreciation of $380,000. The sum of undiscounted future cash flows from use of the machinery is $210,000 and its fair value is $194,000. What amount should Zee Tee recognize as a loss on impairment?

Answer: $66,000 640,000-380,000=260,000 (Cost - Accumulated Depr. = Book Value) 260,000-194,000=66,000 (Book value - Recoverable amount = Impairment loss)

Firms assess​ property, plant and equipment for impairment​ ________.

As either individual assets or in asset groups.

Under IFRS for impairment​ testing, the smallest identifiable group of assets that provides cash inflows is called a​ ________.

Cash-generating unit.

The journal entry to record an impairment loss for an indefinite-life intangible asset includes which of the​ following?

Credit the intangible asset.

All of the following are key steps related to accounting for impairments of long-term operating assets except​ ________.

Derecognition of impairment.

In​ 2018, Mao Li Corporation determined that a production machine used in its operations was impaired and an impairment loss of​ HK$110,000 was recognized. In​ 2019, the fair value of the asset increased by​ HK$170,000 due to an unexpected resurgence in demand for the products the machine was designed to produce. How would the gain due to increase in fair value be recognized in 2019 under​ IFRS?

IFRS permits the recognition of this impairment reversal as income from continuing operations.

Companies should evaluate indefinite life intangible assets at least annually for​ ________.

Impairment.

Which of the following statements regarding long-term operating assets classified as held for disposal is FASLE?

Long-term operating assets classified as held for disposal are valued at net realizable value.

Is an annual impairment test required for all​ long-term operating​ assets? Explain.

No. An annual impairment test is only required for​ indefinite-life intangible assets under U.S. GAAP. This is because​ indefinite-life intangible assets are not subject to amortization and are more likely to be overstated on the balance sheet. In​ addition, indefinite-life intangible assets are typically of the type where the future economic benefit is more uncertain than a tangible plant asset or a​ finite-life intangible asset.

Ponzi Printing Company determines that a printing machine used in its operations has suffered an impairment in value because of technological changes. An entry to record the impairment should include a credit to​ ________.

The machinery account

Deluxe Corp. has four international divisions. One of them, Pere Products, was acquired on January 1, 2018, for £494,000,000, and recorded goodwill of £52,000,000 as a result of that purchase. At December 31, 2018, Pere Products had a recoverable amount of £383,000,000. The December 31, 2018 book value of Pere Products was £356,000,000 (including goodwill). What amount of loss on impairment of goodwill should Deluxe record in 2018 under IFRS?

Answer: - 0 - There is no loss on impairment of goodwill.

In 2009, Heisenburg Company acquired production machinery at a cost of €620,000, which now has accumulated depreciation of €345,000. The value in use of the asset is €292,000 and its fair value less cost to sell is €250,000. What amount should Heisenburg recognize as a loss on impairment under IFRS?

Answer: - 0 - There is no impairment loss.

Deluxe Corp. has four international divisions. One of them, Qaram Corp., was acquired on January 1, 2018, for £610,000,000 and recorded goodwill of £71,000,000 as a result of that purchase. At December 31, 2018, Qaram had a book value (including goodwill) of £375,000,000. The total recoverable amount of Qaram was £365,000,000. What amount of loss on impairment of goodwill should Deluxe record in 2018 under IFRS?

Answer: £10,000,000 375,000,000-365,000,000=10,000,000 (Book value - recoverable amount = Loss on Impairment of goodwill)