Question

The first step in testing for impairment of goodwill is to

compare the fair value of the reporting unit with its book value, including goodwill.

assess qualitative factors that indicate whether the fair value of the reporting unit is greater or less than its carrying value.

measure the fair value of the reporting unit and the fair value of the identifiable assets of the reporting unit.

compare the fair value of the reporting unit with its book value, excluding goodwill.

Impairment losses may be reversed under

Set	GAAP	IFRS
I.	Yes	Yes
II.	Yes	No
III.	No	Yes
IV.	No	No

Set III

Set II

Set I

Set IV

Given the following information for Blue Bell Company for last year:

Net sales (all on account)		$5,200,000
Cost of goods sold		2,080,000
Interest expense		240,000
Income tax expense		280,000
Net income		420,000
Income tax rate		40%
Total assets:
	January 1	$1,800,000
	December 31	2,400,000
Shareholders' equity (all common):
	January 1	1,500,000
	December 31	1,600,000
Current assets, December 31		700,000
Quick assets, December 31		400,000
Current liabilities, December 31		300,000
Net accounts receivable:
	January 1	200,000
	December 31	180,000
Inventory:
	January 1	210,000
	December 31	250,000

Refer to Exhibit 4-1. Blue Bell's inventory turnover for the year was

9.0 times

12.0%

8.3 times

11.1%

On January 1, 2016, Olvert Corp. signed a contract to have Bob's Builders construct a distribution center at a cost of $10,000,000. It was estimated that it would take two years to complete the project. Also on January 1, 2017, to finance the construction cost, Tolvin borrowed $10,000,000 payable in five annual installments of $4,000,000 plus interest at the rate of 6%. During 2017, Tolvin made the following construction-related expenditures:

Date	Amount
2/1	$2,200,000
5/1	$1,700,000
8/1	$   700,000
11/1	$   400,000

What amount should Tolvin report as capitalized interest at December 31, 2017?

$621,000

$300,000

$207,000

$150,000

Answer 1

1. The answer is SET III

Reversal of Impairment loss is allowed under IFRS but under US GAAP it is not allowed. In US GAAP we can not revalue the assets upward.

2. The answer is 9 times

Inventory Turnover	Cost of Goods Sold/ Average Inventory
Cost of Goods Sold	2,080,000.00
Average Inventory	(210000+250000)/2
Average Inventory	230000
Inventory Turnover	9.04

3.  

Interest to be Captilized

3508333*6%

210,500

Weighted Average Expenditure
Date	Expenditure	No. of Months	Weight	Weighted Expenditure
1-Feb	2,200,000.00	11	0.916667	2,016,667
1-May	1,700,000.00	8	0.666667	1,133,333
1-Aug	700,000.00	5	0.416667	291,667
1-Nov	400,000.00	2	0.166667	66,667
	5,000,000.00			3,508,333

Please note that the correct answer will be 210,500 but this option is not available in the question.

Dear Student,

Best effort has been made to give quality and correct answer. But if you find any issues please comment your concern. I will definitely resolve your query.

Also please give your positive rating.