Ethics Case 11–10
Requirement 1
2016 expense using CEO’s approach:
Case 11–10 (concluded)
Requirement 2
Discussion should include these elements.
Facts:
GAAP provides guidance for recording impairment losses on partial write-downs
of property, plant, and equipment and intangible assets remaining in use. Assets
should be written down if there has been a significant impairment of value such as in
decreased product demand and full recovery of book value through use or resale is not
expected. Although the decision and computation to record an impairment loss often
is very subjective and difficult to measure, Heather is able to estimate an equipment
impairment of $12,900,000, presumably using the best information available. The
simple revision in service life approach is clearly an effort to enhance net income on
the part of the CEO.
Ethical Dilemma:
Is Heather’s obligation to challenge the questionable application of revision in
service life more important than her obligation to her boss and to the company’s effort
to reflect a favorable net income?
Who is affected?
11–96 Intermediate Accounting, 8/e
Judgment Case 11–11
Requirement 1
By changing its depreciation method, a company can shift reported income
between periods. For example, a shift from an accelerated method to the straight-line
Requirement 2
A company can manage earnings by changing the estimated useful lives of
Requirement 3
Trueblood Accounting Case 11–12
11–98 Intermediate Accounting, 8/e
Judgment Case 11–13
Transaction Disposition
1. Transaction is correctly recorded as repairs and maintenance
expense.
Real World Case 11–14
Requirement 1
($ in millions)
Property, plant and equipment (Cost):
Requirement 2
2013 depreciable assets:
Property, plant, and equipment $31,316
11–100 Intermediate Accounting, 8/e
Real World Case 11–15
Requirement 3
The following was taken from the company’s 2013 financial statements. Your
results could differ if the company changes any of its policies in years after 2013.
a. The company’s depreciation and depletion policies, disclosed in Note 1.
Summary of Significant Account Policies, are as follows:
Depreciation and depletion of all capitalized costs of proved crude oil and
natural gas producing properties, except mineral interests, are expensed using
b. Expenditures for maintenance (including those for planned major maintenance
projects), repairs, and minor renewals to maintain facilities in operating
IFRS Case 11–16
Requirement 2
GlaxoSmithKline values its property, plant, and equipment at cost less provision
for depreciation and impairment. IFRS also allows the valuation of these assets at fair
Requirement 3
For goodwill, impairments of goodwill are not reversed. U.S. GAAP also does
not allow for reversals of goodwill impairment.
11–102 Intermediate Accounting, 8/e
Analysis Case 11–17
Requirement 1
The statement of cash flows reports depreciation and amortization of $235,431
Requirement 2
PetSmart uses the straight-line depreciation method for buildings, furniture,
Air France–KLM Case
Requirement 1
(€ in millions)
December 31, 2013 Before After
Revaluation Revaluation
Flight equipment €18,157 x 10,000/9,391 = €19,334
Requirement 2
Under U.S. GAAP, property, plant, and equipment is valued at cost less
Requirement 3
IFRS requires that each component of an item of property, plant, and equipment
must be depreciated separately if its cost is significant in relation to the total cost of
11–104 Intermediate Accounting, 8/e
Air France-KLM Case (concluded)
Requirement 4
Per Note 4.14, fixed assets are tested when there is an indication of impairment.
Requirement 5
In Note 4.14, AF states that the company deems the recoverable value of the asset
to be the higher of market value less cost of disposal and its value in use. The later is
Requirement 6
(€ in millions)
Revaluation expense 23