Question

Hastings, Inc. (HI) is a manufacturer that produces stainless car parts. It began as a family business several decades ago and all shares are owned by the Hastings family.
The company’s main assets are its manufacturing facility, surrounding land, and machinery. The land was purchased many years ago and the carrying value ($250,000) reflects only a fraction of the land’s market value.
The manufacturing facility and machinery are rather old, but the company invested in one new equipment at the end of this year (cost $1,000,000) which will show up as a significant investment in the cash flow statement.
HI’s accountant, Minerva McGonagall, is trying to decide how to present property, plant, and equipment in the balance sheet and accompanying notes. She worries about showing how old PPE is, especially since the Hastings family wants to take the company public in the next two years. She has two options in mind:

Option 1
Property, plant, and equipment, net $10,000,000

Option 2

Property, plant, and equipment $50,000,000
Less: Accumulated depreciation (40,000,000)
Net Property, plant, and equipment $10,000,000

Discuss the financial reporting issues and give her your opinion and advice.

Answer 1

The Accountant as per the cost model , the cost of the Property , plant and Equipment is shown with deducting any accumulated depreciation and accumulated impairment losses to show the correct picture of the assets

So Option 2 is the correct option to be shown.

Under the revaluation model, if the Property plant and Equipment fair value is easily measurable then it can be shown at that value with deducting any Subsequent accumulated depreciation and Subsequent accumulated impairment losses to show the correct picture of the assets