Question

1. Find the proper FASB ASC citation that provides guidance on the measurement of an impairment loss for a long-lived asset. (The citation must follow xxx-xx-xx-xx or xxx-xx-xx-x format)

2. To prepare for the construction of its new headquarters, ABC company purchased a 500-acre plot of land on July 12, 2016. ABC company purchased the land using 25% cash and financed the balance using 9% loan from XYZ bank. The company began preparation of the land for the construction of the building on January 15, 2017. Which section of the FASB ASC explicitly states whether the 2016 interest on the bank loan qualifies for capitalization? (The citation must follow xxx-xx-xx-xx or xxx-xx-xx-x format)

3. A recent issued demographic report indicates that there is a reasonable probability that ABC company's business may be adversely impacted in the future. The company's controller wants to begin accruing a general contingency reserve now for unspecified business contingencies, such as the potential decline in business that may occur in the future. Find FASB ASC as to whether or not such an accrual is allowed under GAAP. (The citation must follow xxx-xx-xx-xx or xxx-xx-xx-x format)

4. ABC company suffered inventory loss from market declines in April, 2017. As the result, the company wrote off $7,000 cost of inventory. However, the price of the same inventory was fully recovered in October, 17. Which section of the FASB ASC explicitly states whether or not recovery of such inventory loss can be written up? (The citation must follow xxx-xx-xx-xx or xxx-xx-xx-x format)

Please explain/show all work.

Answer 1

Part 1:

Gordon, E.A. and Hsu, H.T., 2017. Tangible Long-Lived Asset Impairments and Future Operating Cash Flows under US GAAP and IFRS. The Accounting Review, 93(1), pp.187-211.

Part 2:

SFAS No. 34, October 1979 of FASB statement of Financial Accounting Standards provides the guidelines to be followed for capitalization of interest cost. Interest on bank loan will not qualify for capitalization as this is not integral to the construction since the land is ready for construction (Jiang et.al. 2017).

Part 3:

ASC 450 specifies that accrual of general contingencies are allowed when there significant probability of loss in the future. In this case the controller of ABC Company wants to provide for general contingency on the basis of a report which indicates that there is reasonable probability that the business of the company will be adversely affected. Thus, since the probability is reasonable hence, the company is allowed to make provision for general contingency (Shaked and Orelowitz 2015).

Part 4:

FASB Accounting Standards Codification 330-10 discuss the provisions related to inventory including the provision of writing off and written up of inventory as appropriate. In this case since the cost of the inventory has been recovered subsequent to writing off the inventory hence, the cost have to be written up in the books of accounts.   

Reference:

Jiang, J.X., Wang, I. and Wangerin, D., 2017. How Does the FASB Make Decisions? A Descriptive Study of Agenda-Setting and the Role of Individual Board Members.

Shaked, I. and Orelowitz, B., 2015. Contingent Liabilities: GAAP vs. Valuation Perspective. American Bankruptcy Institute Journal, 34(8), p.34.