Section 2...Assets

Question 1

Test for impairment

Answer 1

OCCURS when carrying amount of a long-lived asset exceeds Fair Value.
RECOGNIZED if carrying amount is not recoverable.
Not recoverable if carrying amount exceeds sum of expected value of UNDISCOUNTED future cash flows.

To determine loss amount:
1. Determine if Carrying Value is less than UNDISCOUNTED cash flows.
2. If so, then take F.V. of asset less the Carrying Value.

Question 2

Depletion

Answer 2

1. Calculate the cost to be depleted:
   Mine Cost + Development Cost - Salvage Value (also called estimated value)
2. Figure Depletion Rate
   Removable tons / cost to be depleted
3. Multiply depletion rate x’s tons REMOVED

** If there is a difference between tons removed and tons sold, that number x’s depletion rate is counted as inventory
**Extraction costs are NOT included in the cost to be depleted. They are inventoried.

Question 3

Depreciation Expense after impairment

Answer 3

After an impairment loss is recognized, the reduced carrying amount is the ‘New Cost’. This new cost (F.V. of asset at date of impairment), is depreciated over the asset’s remaining useful life.

Question 4

Carrying value

Answer 4

If actual borrowing rate is significantly different than stated rate, you must use the ‘established cash price’.

Question 5

Cash

Answer 5

Cash balance:

NSF checks should not be included until funds have been redeposited
Checks that have yet to be mailed should not be included, only included when company gives up physical control.

Question 6

AR

Answer 6

The amount of A.D.A. is Bad Debt Expense - Uncollectibles

Question 7

Interest Capitalization

Answer 7

Done by calculating AVG EXPENDITURES over time period x’s interest rate x’s time factor