Explain how gains or losses on impaired assets should be reported in income.
Impaired asset losses are reported as part of the income from continuing operations.
The term "impairment" refers to a reduction in the market value of fixed or intangible assets, indicative of a reduction in quantity, quality, or market value of an asset. The idea is that an asset should never be reported in a business's financial statements above the maximum amount that could be recouped through its sale.
Impairment losses are normally included in "Other costs and losses" column of income from continuing operations. Impairment losses (and the recovery of losses for assets that are to be disposed of) are similar to other operational expenditures. As a result, profits (recoveries of losses) on assets to be disposed of should be recorded in "Other revenues and gains" section as part of the income from continuing activities.
(Depletion Computations—Timber) Stanislaw Timber Company owns 9,000 acres of timberland purchased in 2006 at a cost of $1,400 per acre. At the time of purchase, the land without the timber was valued at $400 per acre. In 2007, Stanislaw built fire lanes and roads, with a life of 30 years, at a cost of $84,000. Every year, Stanislaw sprays to prevent disease at a cost of $3,000 per year and spends $7,000 to maintain the fire lanes and roads. During 2008, Stanislaw selectively logged and sold 700,000 board feet of timber of the estimated 3,500,000 board feet. In 2009, Stanislaw planted new seedlings to replace the trees cut at a cost of $100,000.
Mandall Company constructed a warehouse for $280,000 on January 2, 2017. Mandall estimates that the warehouse has a useful life of 20 years and no residual value. Construction records indicate that $40,000 of the cost of the warehouse relates to its heating, ventilation, and air conditioning (HVAC) system, which has an estimated useful life of only 10 years. What is the first year of depreciation expense using straightline component depreciation under IFRS?
(a) $28,000. (c) $16,000.
(b) $14,000. (d) $4,000.
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