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Research Case 1
William Moffitt
ACCT6305
What guidance does the FASB ASC provide for equity method investment losses in value?
According to the FASB ASC, a loss in value that is not temporary(permanent) should be recognized accordingly to the carrying amount of the investment. This guidance from the FASB ASC indicates that if an investment loses value on a permanent basis, such as major loss of customers or patent rights, then the corresponding value loss should be accounted for in the investment. Should Wolf Pack recognize the decline in the value of its holdings in MVD in its current year financial statements?
Based on the permanent nature of the changes to the economic landscape, such as two competing facilities opening up and a 30% decline in revenues from customers leaving for competitors, this would qualify for an other-than-temporary adjustment. This adjustment should be reflected on the current financial statements as an other-than-temporary impairment adjustment citing the relevant market changes.
Should Wolf Pack test for impairment of the value it had initially assigned to goodwill?
According to FASB ASC 350-20-35-59, equity method goodwill shall not be reviewed for impairment.
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Related Questions
36. Subsequent to their initial recognition, which financial assets with quoted
market prices in an active market are measured at fair value?
Financial assets
Financial Assets with
at amortized cost
a.
b.
C.
d.
Yes
Yes
No
No
fair values through
profit or loss
No
Yes
Yes
No
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15.
An investment in equity instrument may not be classified as a financial asset subsequently measured at
Group of answer choices
Amortized cost
None of these
Fair value through other comprehensive income
Fair value through profit or loss
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In accordance with IAS 36 Impairment of Assets, which one of the following is an indicator that an asset may be impaired?
a. evidence that the asset is physically damaged
b. a fall in interest rates that materially affects the asset’s value in use
c. the market capitalisation of the entity is greater than the carrying amount of its net assets
d. a decline in the asset’s market value, as would be expected from normal use
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KA.
-Assume an investment classified as available for sale. Your value of market is less than its amortized cost. Which of the following assertions is correct?
a. If management intends to sell the investment, it will recognize all of the impairment loss in the Statement of Income and Expenses.
b. If management does not intend to sell the investment and the loss is for credit (credit los), will be recognized in the Statement of Income and Expenses.
c. If management does not intend to sell the investment and the loss is not per credit (credit los), it will be recognized in Other comprehensive income
. d. All of the above are correct.
- Assume an investment in common stock accounted for using the heritage method. The investment will be impaired if:
a. Its market value is less than its amortized cost and the loss of value it is not temporary (other than temporary)
b. Its market value is less than its book value and the loss of value it is not temporary (other than temporary)
c. Its market…
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4. Which of the following is not a component of other comprehensive income?a. Unrealized gain on equity investment measured at fair value through other comprehensive incomeb. Revaluation lossc. Unrealized gain from derivative contracts designated as cash flow hedged. Loss from translation of the financial statements of a domestic operation
5. Which of the following is a component of other comprehensive income?a. Unrealized loss from derivative contracts designated as fair value hedge.b. Unrealized loss on debt investment measured at fair value through other comprehensive incomec. Gain from translation of the financial statement of a domestic operation.d. Remeasurements of defined obligation plan, including accrual gain
6. Statement of comprehensive income can be presented asa. Two statements or single statement of comprehensive incomeb. Single statement of comprehensive income onlyc. Two statement of income statement or statement of comprehensive income onlyd. Statement of…
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If an associate incurs losses, the investor is required to________.
Select one:
a. recognise the losses only to the point where the carrying amount of the investment is equal to zero
b. reclassify the investment as current assets
c. recognise the losses only to the point where the carrying amount of the investment is equal to the initial investment
d. ignore the losses for the purposes of equity accounting adjustments
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Q21
Which of the following is NOT a step in impairment testing?
Select one:
a. Sell the asset after if the fair value is greater than the recoverable amount
b. Calculate the asset’s carrying amount in the books of the entity
c. Calculate the recoverable amount of the asset
d. Assess whether there are circumstances that may indicate that the asset should be impaired.
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Q1
Which of the following statement (s) is (are) true?
(i) When no future economic benefits are no longer expected to flow from an intangible asset, such asset should be derecognized the financial statements of an organization.
(ii) When an intangible asset is derecognized, the carrying amount should be written off as a loss in the profit or loss statement at the date of retirement of the asset.
(iii) When an intangible asset is sold, the difference between the carrying amount and consideration received is recognized in the profit or loss statement at the date of the sale.
(iv) Consideration to be received in the event of sale of an intangible asset should only be cash
Select one:
a. (ii) and (iv) only
b. (i) and (ii) only
c. (i) and (iv) only
d. (i), (ii) and (iii) only
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Multiple choice
1. The transaction costs of acquiring an investment measured at amortized cost are
A. Included in the initial measurement of the investment and amortized to profit or loss using the effective interest method.
B. Initiallt deferred and recognized in profit or loss only when the aaset is derecognized or becomes impaired.
C. Initially deferred and recognized directly in equity when the asset is derecognized or becomes impaired.
D. Expensed immediately on acquisition date.
2. An entity acquired 10 year bonds at a premium. The investment is measured at amortized cost . Seven years after the acquisition, the entity sold 90% of the bonds at a discount. Which is the following is true?
A. Gain is realized on the sale.
B. The remaining 10% should be reclassified out of the amortized cost measument category.
C. Loss is realized on the sale.
D. B and C
3. There are no payments made during the life of this type of bond; both the principal and interest( computed on a…
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4. Statement 1: In the sale of a financial asset measured at fair value through OCI, the difference between the selling price and the carrying amount is recorded as a gain or loss on sale of investment. Statement 2: When the fair value of a financial asset measured at fair value through OCI is higher than its carrying amount, an unrealized loss-OCI is debited.
a. Only statement 1 is true
b. Only statement 2 is true
c. Both statements are true
d. Both statements are false
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An investment in equity instrument may not be classified as a financial asset subsequently measured at
Group of answer choices
Fair value through profit or loss
None of these
Fair value through other comprehensive income
Amortized cost
arrow_forward
q24
Which of the following is NOT a step in impairment testing?
Select one:
a. Calculate the asset’s carrying amount in the books of the entity
b. Sell the asset after if the fair value is greater than the recoverable amount
c. Calculate the recoverable amount of the asset
d. Assess whether there are circumstances that may indicate that the asset should be impaired.
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Question 33
Which one of the following items, originally recorded in the Investment in Falcon Co. account under the equity method, would not be systematically used to reduce investment income on a periodic basis?
Answers:
A.
Depreciation expense on the excess fair value attributed to machinery
B.
Amortization expense of goodwill
C.
Depreciation expense on the excess fair value attributed to building
D.
Amortization expense on the excess fair value attributed to lease agreements
arrow_forward
Choose the correct answer:
Under IFRS 9, the cumulative balance of equity as a result of measuring the investment at fair value through OCI
a. shall be reversed to profit or loss once security has been sold.
b. shall be reversed to profit or loss once security has been impaired.
c. shall not be reversed to profit or loss but can be transferred to another equity account.
d. shall not be reversed to profit or loss nor transferred to another equity account.
.
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Transfers of investments between categories
a. Should always affect net income
b. Are accounted for at fair value for all transfers
c. Result in omitting recognition of fair value in the year of the transfer.
d. Are not recognized if investments are transferred from held for collection to fair value
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impairments on financial instruments are ?
A) recognized as a realized loss if the impairment is judged to be temporary
B) based on discounted cash flows for securities
C) based on fair value for available-for-sale investments and negotiated values for hel-to-maturity investments
D) evaluated using the CECL model similiar to receivables
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Question 1
Which of the following is not correct in relation to the reversal of an impairment loss of an individual asset?
If the individual asset is recorded under the cost model, then the increase in the carrying amount is recognised immediately in profit or loss.
Where the recoverable amount is less than the carrying amount of an individual asset, the reversal of a previous impairment loss requires adjusting the camying amount of the asset to
recoverable amount.
When reversing an impairment loss, the carrying amount cannot be increased to an amount in excess of the carrying amount that would have been determined had ne impairmert los been
recognised.
O For a depreciable asset there needs to be a calculation of carrying amount using the depreciation variables applied before the impairment loss to determine what the carrying amount would
have been if there had been no impairment loss.
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Which statement is incorrect regarding reclassification of financial assets?
Group of answer choices
The effective interest rate and the measurement of expected credit losses are not adjusted as a result of the reclassification from AC measurement category to FVTOCI and vice versa.
The effective interest rate is determined on the basis of the fair value of the asset at the reclassification date when an entity reclassifies a financial asset out of FVTPL measurement category.
All reclassifications out of FVTOCI measurement category result in ‘reclassification adjustment’.
Reclassifications to FVTPL measurement category result to amounts recognized in profit or loss.
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When an investment ceases to be an associate, the fair value of the
investment at the date when it ceases to be an associate:
Is regarded as its cost on initial recognition as a financial asset.
Is regarded as its fair value on initial recognition as a financial asset.
O Is regarded as its fair value on initial recognition as a financial liability.
O Is regarded as its amortized cost on initial recognition as an investment.
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Reporting an investment at its fair value requires adjusting its carrying amount for changes in fair value after its acquisition (or since the last reporting date if it was held at that time). Such changes are called unrealized holding gains and losses because they haven’t yet been realized through the sale of the security. If a security is classified as available-for-sale, and an unrealized holding loss is viewed as giving rise to an other-than-temporary (OTT) impairment, how is it reported in the financial statements?
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17 The accounting book value of an asset represents the historical cost of the asset rather than its current market value or replacement cost.
Select one:
True
False
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(Based on Appendix 12B) Reporting an investment at its fair value requires adjusting its carrying amount forchanges in fair value after its acquisition (or since the last reporting date if it was held at that time). Such changesare called unrealized holding gains and losses because they haven’t yet been realized through the sale of thesecurity. If a security is classified as available-for-sale, and an unrealized holding loss is viewed as giving rise toan other-than-temporary (OTT) impairment, how is it reported in the financial statements?
arrow_forward
20. For an SME, changes in the fair value less costs to sell of biological assets are
a. recognized in profit or loss
b. recognized in other comprehensive income
c. not recognized
d. a or b
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Related Questions
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- KA. -Assume an investment classified as available for sale. Your value of market is less than its amortized cost. Which of the following assertions is correct? a. If management intends to sell the investment, it will recognize all of the impairment loss in the Statement of Income and Expenses. b. If management does not intend to sell the investment and the loss is for credit (credit los), will be recognized in the Statement of Income and Expenses. c. If management does not intend to sell the investment and the loss is not per credit (credit los), it will be recognized in Other comprehensive income . d. All of the above are correct. - Assume an investment in common stock accounted for using the heritage method. The investment will be impaired if: a. Its market value is less than its amortized cost and the loss of value it is not temporary (other than temporary) b. Its market value is less than its book value and the loss of value it is not temporary (other than temporary) c. Its market…arrow_forward4. Which of the following is not a component of other comprehensive income?a. Unrealized gain on equity investment measured at fair value through other comprehensive incomeb. Revaluation lossc. Unrealized gain from derivative contracts designated as cash flow hedged. Loss from translation of the financial statements of a domestic operation 5. Which of the following is a component of other comprehensive income?a. Unrealized loss from derivative contracts designated as fair value hedge.b. Unrealized loss on debt investment measured at fair value through other comprehensive incomec. Gain from translation of the financial statement of a domestic operation.d. Remeasurements of defined obligation plan, including accrual gain 6. Statement of comprehensive income can be presented asa. Two statements or single statement of comprehensive incomeb. Single statement of comprehensive income onlyc. Two statement of income statement or statement of comprehensive income onlyd. Statement of…arrow_forwardIf an associate incurs losses, the investor is required to________. Select one: a. recognise the losses only to the point where the carrying amount of the investment is equal to zero b. reclassify the investment as current assets c. recognise the losses only to the point where the carrying amount of the investment is equal to the initial investment d. ignore the losses for the purposes of equity accounting adjustmentsarrow_forward
- Q21 Which of the following is NOT a step in impairment testing? Select one: a. Sell the asset after if the fair value is greater than the recoverable amount b. Calculate the asset’s carrying amount in the books of the entity c. Calculate the recoverable amount of the asset d. Assess whether there are circumstances that may indicate that the asset should be impaired.arrow_forwardQ1 Which of the following statement (s) is (are) true? (i) When no future economic benefits are no longer expected to flow from an intangible asset, such asset should be derecognized the financial statements of an organization. (ii) When an intangible asset is derecognized, the carrying amount should be written off as a loss in the profit or loss statement at the date of retirement of the asset. (iii) When an intangible asset is sold, the difference between the carrying amount and consideration received is recognized in the profit or loss statement at the date of the sale. (iv) Consideration to be received in the event of sale of an intangible asset should only be cash Select one: a. (ii) and (iv) only b. (i) and (ii) only c. (i) and (iv) only d. (i), (ii) and (iii) onlyarrow_forwardMultiple choice 1. The transaction costs of acquiring an investment measured at amortized cost are A. Included in the initial measurement of the investment and amortized to profit or loss using the effective interest method. B. Initiallt deferred and recognized in profit or loss only when the aaset is derecognized or becomes impaired. C. Initially deferred and recognized directly in equity when the asset is derecognized or becomes impaired. D. Expensed immediately on acquisition date. 2. An entity acquired 10 year bonds at a premium. The investment is measured at amortized cost . Seven years after the acquisition, the entity sold 90% of the bonds at a discount. Which is the following is true? A. Gain is realized on the sale. B. The remaining 10% should be reclassified out of the amortized cost measument category. C. Loss is realized on the sale. D. B and C 3. There are no payments made during the life of this type of bond; both the principal and interest( computed on a…arrow_forward
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