Long-lived asset and imparment with FASB codification
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1. How is "Impairment" defined in the Master Glossary?
2. Give one example of an event or change that would require a long-lived asset to be tested for recoverability. (Provide the Codification reference for your answer)
3. Should a long-lived asset that is held for sale be depreciated? (Provide the Codification reference for your answer)
4. Under what circumstances might the Declining Balance method of depreciation provide the most satisfactory allocation of cost? (Provide the Codification reference for your answer)
5. Does the Codification specifically list any unacceptable depreciation methods? (Provide the Codification reference for your answer)
6. Crabtree Company is preparing its December 31, year-end financial statements. Crabtree has a machine that had been used in production for the past 3 years, but was replaced with a newer model during the past year. It is currently sitting in the warehouse and is not in use. Management at Crabtree would like to sell the machine in the following year. Sometime in March they intend to make any necessary repairs and then place the asset for sale. Management believes that since its intent is to sell this machine and it is currently not in use, it should be classified as Held for Sale as of December 31.
a. What are the criteria that must be met in order for a long-lived asset to be classified as held for sale? (Provide the Codification reference for your answer)
b. Should this machine be classified as held for sale on Crabtree's December 31 financial statements?
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Solution Summary
Based on FASB codification, the solution answers questions such as: How is "Impairment" defined?, gives examples of an event or change that would require a long-lived asset to be tested for recoverability; Should a long-lived asset that is held for sale be depreciated? Under what circumstances might the Declining Balance method of depreciation provide the most satisfactory allocation of cost? unacceptable depreciation methods? What are the criteria that must be met in order for a long-lived asset to be classified as held for sale?
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