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P10–21. IFRS impairment and revaluation (LO 10)
Requirement 1: Cost model
12/31/2013:
No entry
12/31/2014:
DR Impairment loss: land
€250,000
CR Land
€250,000
12/31/2015:
DR Land
€100,000
CR Impairment reversal: land
€100,000
Requirement 2: Revaluation model
12/31/2013:
DR Land
€150,000
CR Revaluation surplus
€150,000
12/31/2014:
DR Revaluation surplus
€150,000
DR Impairment loss: land
€250,000
CR Land
€400,000
12/31/2015:
DR Land
€100,000
CR Impairment reversal: land
€100,000
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P10–22. IFRS impairment and revaluation (LO 10)
Requirement 1: Cost model
12/31/2013:
DR Depreciation expense
€35,000*
CR Accumulated depreciation: hotel
€35,000
*2,100,000/30 years x ½ year
12/31/2014:
DR Depreciation expense
€70,000**
CR Accumulated depreciation: hotel
€70,000
**(2,100,000 – 35,000)/29.5 years
New carrying value = 2,100,000 – 35,000 – 70,000 = 1,995,000
Need to impair to recoverable amount of 1,400,000
DR Impairment Loss
€595,000
CR Accumulated depreciation: hotel
€595,000
12/31/2015:
DR Depreciation expense
€49,123***
CR Accumulated depreciation: hotel
€49,123
***1,400,000/28.5 years
New carrying value = 1,400,000 – 49,123 = 1,350,877
Need to reverse impairment (limited to 595,000 of prior impairment write-downs)
DR Accumulated depreciation: hotel
€349,123
CR Impairment reversal
€349,123
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Requirement 2: Revaluation model
12/31/2013:
DR Depreciation expense
€35,000*
CR Accumulated depreciation: hotel
€35,000
DR Accumulated depreciation: hotel
€35,000
DR Hotel
€100,000
CR Revaluation surplus
€135,000
12/31/2014:
DR Depreciation expense
€74,576**
CR Accumulated depreciation: hotel
€74,576
**(2,200,000)/29.5 years
DR Revaluation surplus
€4,576***
CR Retained earnings
€4,576
DR Revaluation surplus
€130,424
DR Impairment Loss
€595,000
CR Accumulated depreciation: hotel
€725,424
12/31/2015:
DR Depreciation expense
€49,123***
CR Accumulated depreciation: hotel
€49,123
DR Accumulated depreciation: hotel
€349,123
CR Impairment reversal
€349,123
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Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill Education.
Financial Reporting and Analysis (6th Ed.)
Chapter 10 Solution
Long-Lived Assets and Depreciation
Cases
Cases
C10-1. Target Corporation and Wal-Mart Stores, Inc.: Identifying depreciation
differences and performing financial statement analysis
Requirement 1:
The estimated average useful life of Target’s assets is:
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Wal-Mart’s income before taxes would fall by $8,294.1 – $7,157, or $1,137.1
(i.e., the increase in the depreciation expense that would have been recorded).
The revised amount of income before tax of $22,066 – $1,137.1 = $20,928.9
(i.e., the decrease in the depreciation expense that would have been recorded).
The revised amount of income before tax of $3,872 + $271.3 = $4,143.3 might
be more valid for ratio and trend comparisons. Again, this answer presumes
0.35)] to $2,664.3, which might be more appropriate for ratio comparisons.
Requirement 4:
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Requirement 5:
Some factors that affect the reliability and accuracy of the adjustments made
above include:
C10-2. Granite Construction: Analyzing financial statement effects of capitalized
interest
Requirement 1:
The rationale for capitalizing interest is the matching principle. If the interest
were expensed in the year incurred rather than matched with the future
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Requirement 3:
$59.9 ÷ Income before income taxes of $81.0).
Requirement 4:
C10-3. National Coal Corporation: Analyzing financial statement effects of
depreciation policy changes
Requirement 1:
The bottom line effect of the increase in depreciation expense is $3.6 million.
assets to depreciate, and because their outside auditors must sanction/agree
with the changes they make.
Requirement 5:
1. Royal Dutch Shell uses depreciation methods that are allowed under U.S.
GAAP.
2. The company reviews its long-lived assets for impairment and reduces the
carrying value when appropriate.
3. Although the question asks about Property, plant, and equipment, the
instructor may also want to mention differences related to intangible assets.
2. Goodwill is not amortized.
Differences
1. The test for impairment and the subsequent write-down are different from
U.S. GAAP. Shell reduces the carrying amount to the recoverable amount,
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2. IFRS allows firms to reverse impairment losses. This is evident from the
schedule on page xxx. In 2012, Royal Dutch Shell had new impairment
C10-5. Marston’s PLC: Identifying differences and similarities between IFRS and
GAAP
Similarities
2. Labor and interest costs are capitalized for self-constructed assets.
3. Land is not depreciated.
1. IFRS allows long-lived tangible assets to be valued under the depreciated
cost model or a revaluation model. Marston’s revalues its properties on a
regular basis so that the carrying value “does not differ significantly from its
2. The test for impairment and the subsequent write-down are different from
U.S. GAAP. On page 610, Marston’s states that it recognizes an
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