Accounting

Case 1.

A recently issued FASB standard requires that an impairment loss be
recognized if the sum of the expected future net cash inflows
(undiscounted and without interest charges) is less than the carrying
value of the asset. The amount of the impairment loss recognized is the
amount by which the carrying amount of the asset exceeds the fair value
of the asset.

Provide several examples of events or changes in circumstances that
indicate that the recoverability of the carrying amount of
an asset may have been impaired.



* Evaluate the recognition criterion proposed by the FASB,
specifically addressing the issue of using the undiscounted sum
of the future net cash flows.

Case 2.

Assets constructed for a firm’s own use present the problem of whether
to capitalize interest on the funds invested during the time required to
prepare the assets for their intended use. Current generally accepted
accounting principles as specified by the FASB in Statement No. 34
require the capitalization of interest on borrowed capital, but not to
exceed the total interest paid by the firm.

* Evaluate the propriety of the approach currently required in the
professional pronouncements now in effect, and whether other
approaches may be valid and should be incorporated into G.A.A.P.

Case 3.

George Harmon is the president of the Utah Western Railroad Company.
The Utah Western is a bridge line that receives traffic from the Union
Pacific Railroad and the Burlington Northern railroads at Salt Lake
City, Utah, and hauls the freight to Denver, Colorado, for connections
with other lines to points east. Recently, traffic on the Utah Western
has increased dramatically and the railroad is in need of additional
locomotives to haul its trains. Accordingly, George is considering
leasing locomotives to meet the demands of this increase in traffic
until new engines can be ordered if the surge subsides.

* As the controller of the railroad, George has asked you to advise
him as to the disadvantages associated with leasing generally.