...Eagle Impairment Loss Eagle Company (Eagle) is a manufacturing company with operations in Italy and Serbia. Eagle in Italy: In addition to other assets, Eagle owns and operates a commercial building in Italy that is carried at its cost less any accumulated depreciation and any accumulated impairment losses. The building represents a cash-generating unit (CGU) for which the following information is available as of December 31, 2010: Building | 12/31/10 inthousands | Carrying amount | $1,100 | Value in use | 900 | Fair market value less costs to sell | 800 | Fair market value | 850 | Undiscounted future cash flows | 1,150 | Eagle in Serbia: In Serbia, in 2008, Eagle acquired a smaller competing company and goodwill was allocated to the CGU shown below. Activities in Serbia represent the lowest level at which internal management monitors goodwill. At the end of 2008 and 2009, the value in use of the CGU including goodwill exceeded its carrying amount. Therefore the activities of Eagle in Serbia and the goodwill allocated to those activities were regarded as not impaired. However, at the end of 2010, the newly elected government passed legislation significantly restricting exports of Eagle’s main product. The information below relates to the CGU (which includes goodwill) of Eagle’s operations in Serbia before the impairment analysis is performed. For this case, assume the basis of segmentation for CGUs and reporting units (RU) is the same under IFRSs and...
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...Case #2 (Eagle Impairment Loss) Question 1: The Impairment Loss of Eagle in Italy under IFRS Recoverability test: Asset’s carrying amount exceeds the recoverable amount which is the higher of the asset’s value-in-use (discounted present value of the asset’s expected future cash flows) and fair market value less costs to sell. (IAS36-15) According to IAS36-6, “an impairment loss is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. The impairment loss = Carrying amount - Value in use = $1,100,000-900,000=$200,000 Question 2: The Impairment Loss of Eagle in Italy under U.S. GAAP (FASB 360-10) Recoverability test: Asset’s carrying amount exceeds the undiscounted future cash flows from the asset. Because the carrying amount $1,100 is less than the undiscounted future cash flows $1,150, there is no impairment loss. Question 3: The Impairment Loss of Eagle in Serbia 1. Impairment of Goodwill under GAAP and IFRSs - Two-step approach for testing goodwill impairment under U.S. GAAP (FASB ASC-350-20-35) 1) If assets’ fair value of reporting unit is greater than the carrying amount including goodwill, there is no impairment. 2) If there’s impairment indicated by step 1, then compare implied fair value of goodwill with carrying amount. Implied fair value of goodwill is obtained by deducting the fair values of all the reporting unit’s assets and liabilities from the fair value of the reporting unit. From...
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...Eagle Impairment Case The following report outlines an analysis of Eagle Company’s assets in Serbia and Italy. With the information provided, we have created a detailed report to assess which assets should be impaired along with its impairment value under the IFRS and US GAAP standards. Eagle in Italy Under IFRS: Eagle owns a commercial building in Italy. The carrying amount is $1,100 with $900 being the value in use. According to IAS 36 P18, “An asset is impaired when its carrying amount exceeds its recoverable amount.” In this case, the carrying amount ($1,100) exceeds the recoverable amount (Higher of Value in use) of $900. Eagle should report an impairment loss of the difference of the carrying amount and the value in use: $1,100 - $900 = $200,000. Eagle should report an impairment loss of $200,000 for their cash-generating unit (CGU) in Italy. Under US GAAP: According to US GAAP, if the undiscounted future cash flows ($1,150) exceeds the carrying amount ($1,100), then no impairment loss is recorded. Since that is the case, under US GAAP, Eagle should not report an impairment loss on their CGU. Eagle in Serbia Under IFRS: Eagle acquired a smaller competing company in 2011 in Serbia; goodwill was allocated to the CGU. The guidelines for determining whether an impairment loss is recorded are the same as the scenario for Eagle in Italy, “An asset is impaired when its carrying amount exceeds its recoverable amount.” The fair value of the PP&E was $1 million...
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...To: Eagle Company (Eagle) From: Subject: Eagle in Italy and Eagle in Serbia Impairments Date: May 7th 2014 1. For Eagle in Italy, is the building impaired under IFRS as of Dec. 31, 2013, and if so what is the amount of the impairment? After reviewing the given facts provided by Eagle in Italy, we have determined that there is an impairment on their building under IFRS for the amount of $200,000. We have determined this through the use of IAS-36 as well as the calculations given below: IAS 36-6 An impairment loss is the amount by which the carrying amount of the asset or a cash-generating unit exceeds its recoverable amount. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. Our recoverable amount then equals $900,000 because the value in use ($900,000) exceeds fair market value less costs to sell ($800,000). IAS 36-59 If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss. Recoverable Amount ($900,000) < Carrying Amount ($1,100,000) Therefore, we shall recognize an impairment loss of $200,000 2. For Eagle in Italy, is the building impaired under U.S. GAAP as of Dec. 31, 2013, and if so what is the amount of the impairment? After reviewing the given facts provided by Eagle in Italy, we have determined that there is not an impairment...
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...Case 10-2 Eagle Impairment Loss Eagle Company (Eagle) is a manufacturing company with operations in Italy and Serbia. Eagle in Italy: In addition to other assets, Eagle owns and operates a commercial building in Italy that is carried at its cost less any accumulated depreciation and any accumulated impairment losses. The building represents a cash-generating unit (CGU) for which the following information is available as of December 31, 2010: Building 12/31/10 in thousands  Carrying amount  $1,100  Value in use   900  Fair market value less costs to sell 800  Fair market value  850  Undiscounted future cash flows 1,150  Eagle in Serbia: In Serbia, in 2008, Eagle acquired a smaller competing company and goodwill was allocated to the CGU shown below. Activities in Serbia represent the lowest level at which internal management monitors goodwill. At the end of 2008 and 2009, the value in use of the CGU including goodwill exceeded its carrying amount. Therefore the activities of Eagle in Serbia and the goodwill allocated to those activities were regarded as not impaired. However, at the end of 2010, the newly elected government passed legislation significantly restricting exports of Eagle’s main product. The information below relates to the CGU (which includes goodwill) of Eagle’s operations in Serbia before the impairment analysis is performed. For this case, assume the basis of segmentation for CGUs and reporting units (RU) is the same under...
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...The case begins with describing Eagle impairment, which is a manufacturing company, which has operations in Italy and Serbia. In Italy Eagle owns and operates a commercial building that is carried at its cost less depreciation. The case then gives us a chart which shows us Cash generating unit that includes: carrying amount $1,100, value in use 900, fair market value less costs to sell 800, fair market value 850, and undiscounted future cash flows 1,150 all in thousands. Eagle’s manufacturing company in Serbia attained a smaller competing company. The activities in Serbia are regarded as not impaired because the value in the use of CGU including goodwill exceeds its carrying amount. By the end of 2010 the govt passed a legislation drastically restricting exports of eagle’s main merchandise. The CGU in the end of 2010 was altered because of the new legislation, which included: cash $50, property plant and equipment 1,100, land 150, goodwill 300, total assets 1,600, liabilities (200), and carrying value 1,400 all in thousands. The case goes on to show us a 5 year business forecast of Eagle Impairment. It reflects an increase in the amount of capital expenditures in order to modify Eagle’s mail product. Eagle uses straight line depreciation and anticipates no residual value. 1. I assume the commercial building meets the requirements for a recoverable test under IFRS. The carrying value is $1,100 whci is greater than the claue in use which is $900. The fair market value less...
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...facts provided for Eagle in Italy, the building is not impaired under IFRS as of December 31, 2010. The carrying value is 1,100,000, and undiscounted future cash flows are 1,150,000. The carrying value is less than undiscounted future cash flows. According to IAS36 paragraph 12, “in assessing whether there is any indication that an asset may be impaired, an entity shall consider, as a minimum, the following indications: (d) the carrying amount of the net assets of the entity is more than its market capitalization.” Thus, there is not any impairment on the building under IFRS. Question 2 Given the facts provided for Eagle in Italy, the building is impaired under U.S. GAAP as of December 31, 2010. Under ACS 360-35-17, “An impairment loss shall be recognized only if the carrying amount of a long-lived asset is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset” In the case, the carrying value is 1,100,000, and the fair value is 850,000. The carrying value is more than its fair value, an impairment should be recognized. However, it is recoverable since its carrying value is less than undiscounted future cash flows. In ASC 360-35-17 “An impairment loss shall be measured as the amount by which the carrying value of the long-lived asset exceeds its fair value.” Therefore, the impairment loss amount on its building...
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...Case 10-2 Eagle Impairment Case Question #1 Under IFRS’ International Account Standard No.36^15 an asset must be assessed for indicators of impairment at the end of each reporting period. The information provided for the commercial building in Italy does not say whether there are is an event or change in circumstances that indicate that book value of the asset may not be recoverable. Since there is no indicator mentioned, one possibility would be that no investigation of impairment take place and there is no impairment loss. It is more likely however that there are indicators that have occurred, they just aren’t identifiable from the information given. If there were indicators and impairment was tested there is no recoverability test under IFRS. An impairment loss is recognized when an asset’s book value exceeds the higher of the asset’s value-in-use or fair value less costs to sell. For Italy’s commercial building the book value is $1,100,000, the value-in-use is $900,000, and the fair value less costs to sell is $800,000. Since the commercial building’s book value is higher than the value-in-use an impairment would be recognized as the difference between book value and the recoverable amount (value-in-use in this situation). So an impairment loss would be recognized for $200,000($1,100,000- $900,000). Question #2 Under U.S. GAAP, assets are tested for impairment when events or changes in circumstances indicate that book value may not be recoverable. For the building in...
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...|5/1/10 | 20,000 |N/A |11/15/10 | 23,000 | |Coy Company stock |8/2/10 | 16,000 | 19,500 |1/17/11 | 21,000 | 1. Topic: Accounting for trading securities LO 2 If the above investments are categorized as trading securities, what amount is reported for gain or loss on securities, on the 2010 income statement? a. $3,000 gain b. $2,500 gain c. $4,000 loss d. No gain or loss ANS: b 2. Topic: Accounting for trading securities LO 2 If the above investments are categorized as trading securities, what amount is reported for gain or loss on securities, on the 2011 income statement? a. $1,000 loss b. $2,000 gain c. $3,000 gain d. $500 loss ANS: d 3. Topic: Accounting for AFS securities LO 2 If the above investments are categorized as available-for-sale securities, what amount is reported for gain or loss on securities, on the 2010 income statement? a. $3,000 gain b. $2,500 gain c. $4,000 loss d. No gain or loss ANS: a 4. Topic: Accounting for AFS securities LO 2 If the above investments are categorized as...
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...forty-three years old when he committed suicide by taking a gunshot wound to the chest. Neuroscientists who studied his brain tissue after his suicide found he suffered from Chronic Traumatic Encephalopathy (CTE). This is a degenerative brain disease that is linked to repeated hits to the head and brain trauma. They also concluded that the damage to his prefrontal cortex affected his personality and behavior, but did not change his executive function. NFL players with a history of concussions were found to have a decline in their mental health and have a lower rate of memory. More issues that have also become evident are late life memory impairment, cognitive impairment, and Alzheimer's disease. During the 1997 Eagles versus Packer game, another serious altercation took place on the football field. Kevin Turner who was a fullback for the Eagles, had a high-impact collision with Clay Matthews. The end result of this issue was Turner, who, added another concussion to his series of unfortunate events was the reason of his early retirement. Later on at the age of forty-one he had been diagnosed with amyotrophic lateral sclerosis (ALS). He also was diagnosed with chronic traumatic encephalopathy (CTE). Which, had been diagnosed in other athletes marked by head trauma. Former players have stated that they knew they had a concussion but tried to hide it in fear of being taking out of the game or having to sit after that. They were aware of would could have happened to them for not reporting...
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...committed to returning excess cash and generating superior returns for shareholders 2 SUPERIOR RETURNS TO SHAREHOLDERS 3-year Total Return 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 Fast Retailing TJX Home Depot L Brands Foot Locker Inditex Gap Giordano Ascena Retail Group Buckle Chico's Ralph Lauren Bed Bath & Beyond Wal-Mart Stores Walgreen Co. Tiffany & Co. H&M Ann Inc. Best Buy American Eagle Children's Place Target Coach bebe Staples Abercrombie & Fitch Esprit Holdings Li & Fung Aeropostale S&P 500 S&P Retail Index 51.7 43.7 35.9 35.5 31.4 30.9 23.7 20.7 19.6 19.4 18.8 17.9 17.9 16.3 16.3 16.1 14.7 12.2 8.9 6.0 4.5 4.2 2.4 0.1 (8.7) (15.8) (21.1) (21.7) (28.1) 15.8 24.0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 5-year Total Return L Brands TJX Ann Inc. Foot Locker Chico's Giordano Ascena Retail Group Tiffany & Co. Inditex Home Depot Ralph Lauren Fast Retailing Buckle Gap Bed Bath & Beyond Coach Children's Place Walgreen Co. H&M Target American Eagle Li & Fung Best Buy Wal-Mart Stores Abercrombie & Fitch bebe Staples Aeropostale Esprit Holdings S&P 500 S&P Retail Index 54.2 44.5 44.2 43.3 36.4...
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...For the exclusive use of D. Xiang, 2015. 9-200-044 REV: JANUARY 15, 2002 LISA MEULBROEK Kmart Inc. and Builders Square Introduction In July 1997, Kmart appeared to be nearing a year-long effort to sell its faltering Do-It-Yourself (DIY) home improvement chain, Builders Square. Leonard Green & Partners, a Los Angeles-based retail buyout firm, had proposed to buy Builders Square (BSQ) and merge it with Hechinger’s, a Washington, D.C.-based DIY chain that had been a pioneer in the retail home improvement industry. The newly-formed Builders Square-Hechinger combination would create the nation’s third largest DIY retailer, and seemed to be one of the few options left to Kmart. Kmart’s CEO, Floyd Hall, had a difficult decision to make: should he move forward with Green’s offer of $10 million for Builders Square, or should he continue the search in hopes of receiving a higher offer? Green’s offer seemed surprisingly low, even given Builders Square’s recent sub-par performance, yet bidders for Builders Square had been slow to materialize. Indeed, Kmart’s recent talks concerning a joint venture with Waban Co.’s HomeBase centers ended when Waban’s management withdrew without explanation. As the decision neared, Kmart’s options seemed limited and time was short. Kmart and its Entry into Specialty Retailing Kmart Corporation, one of the world’s largest mass merchandise retailers, began as the S.S. Kresge Company in 1912 and by the 1950s it was one of the largest...
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...CHAPTER 1 INTERCORPORATE ACQUISITIONS AND INVESTMENTS IN OTHER ENTITIES ANSWERS TO QUESTIONS Q1-1 Complex organizational structures often result when companies do business in a complex business environment. New subsidiaries or other entities may be formed for purposes such as extending operations into foreign countries, seeking to protect existing assets from risks associated with entry into new product lines, separating activities that fall under regulatory controls, and reducing taxes by separating certain types of operations. Q1-2 The split-off and spin-off result in the same reduction of reported assets and liabilities. Only the stockholders’ equity accounts of the company are different. The number of shares outstanding remains unchanged in the case of a spin-off and retained earnings or paid-in capital is reduced. Shares of the parent are exchanged for shares of the subsidiary in a split-off, thereby reducing the outstanding shares of the parent company. Q1-3 The management of Enron appears to have used special-purpose entities to avoid reporting debt on its balance sheet and to create fictional transactions that resulted in reported income. It also transferred bad loans and investments to special-purpose entities to avoid recognizing losses in...
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...Chapter 1 Financial Statements and Business Decisions ANSWERS TO QUESTIONS 1. Accounting is a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers. 2. Financial accounting involves preparation of the four basic financial statements and related disclosures for external decision makers. Managerial accounting involves the preparation of detailed plans, budgets, forecasts, and performance reports for internal decision makers. 3. Financial reports are used by both internal and external groups and individuals. The internal groups are comprised of the various managers of the entity. The external groups include the owners, investors, creditors, governmental agencies, other interested parties, and the public at large. 4. Investors purchase all or part of a business and hope to gain by receiving part of what the company earns and/or selling the company in the future at a higher price than they paid. Creditors lend money to a company for a specific length of time and hope to gain by charging interest on the loan. 5. In a society each organization can be defined as a separate accounting entity. An accounting entity is the organization for which financial data are to be collected. Typical accounting entities are a business, a church, a governmental unit, a university and other nonprofit organizations such as a hospital and a welfare organization. A business typically...
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...Chapter 1 Financial Statements and Business Decisions ANSWERS TO QUESTIONS 1. Accounting is a system that collects and processes (analyzes, measures, and records) financial information about an organization and reports that information to decision makers. 2. Financial accounting involves preparation of the four basic financial statements and related disclosures for external decision makers. Managerial accounting involves the preparation of detailed plans, budgets, forecasts, and performance reports for internal decision makers. 3. Financial reports are used by both internal and external groups and individuals. The internal groups are comprised of the various managers of the entity. The external groups include the owners, investors, creditors, governmental agencies, other interested parties, and the public at large. 4. Investors purchase all or part of a business and hope to gain by receiving part of what the company earns and/or selling the company in the future at a higher price than they paid. Creditors lend money to a company for a specific length of time and hope to gain by charging interest on the loan. 5. In a society each organization can be defined as a separate accounting entity. An accounting entity is the organization for which financial data are to be collected. Typical accounting entities are a business, a church, a governmental unit, a university and other nonprofit organizations such as a hospital and a welfare organization. A...
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