Question

1.

Gibbon Corp., a Canadian public corporation, owns equipment for which the following year-end information is available:

Carrying amount (book value)		$59,000
Recoverable amount		52,000
Fair value less disposal costs		55,000

Which of the following best describes the proper accounting treatment for Gibbon's equipment?

a. It is not impaired and a loss should not be recognized.

b. It is impaired and a loss must be recognized, with no reversal possible.

c. It is not impaired, but a loss must be recognized.

d. It is impaired and a loss must be recognized, but the loss but may be reversed in future periods.

2.

Tunisia Inc. owns assets to which it applies the revaluation model (asset-adjustment method). The following additional information is available:
1. Accumulated Depreciation at December 31, 2021, (prior to any fair value adjustments) was $12,000.
2. Between December 31, 2020, and December 31, 2021, the property's fair value had increased by $30,000.
3. The December 31, 2021, balance in the revaluation surplus account (prior to any fair value adjustments) was $2,000.
Assume the same facts as indicated above, except that, between December 31, 2020, and December 31, 2021, the property's fair value had decreased by $10,000. As a result, Tunisia's 2021 income statement will include a

a. $8,000 loss.

b. $8,000 gain (other comprehensive income).

c. $2,000 loss.

d. $10,000 loss.

3.

Dinga Corp. exchanged similar pieces of equipment with Elongo Corp. No cash was exchanged. Since this exchange will not significantly change the economic position of either company, this transaction lacks commercial substance. At this time, the net book value of Dinga's asset is $36,000, while the net book value of Elongo’s asset on their books is $33,300. However, it has been reliably determined that the fair value of Dinga’s asset is $36,900, while the fair value of Elongo’s asset is $34,200. Given these facts, at what amount should Dinga record the asset it receives from Elongo?

$34,200

$33,300

$36,900

$36,000

Answer 1

1. c. It is not impaired, but a loss must be recognized.

2. a. $8,000 loss.

Decrease in value iss by $10,000

Revaluation surplus = $2000

So net loss in income statement = $2000-10000 = $8000

3. d. $36,000

When exchange lacks commercial substance, the new asset is recorded at the carrying amount of the old asset (original cost minus accumulated depreciation).

In this case , the net book value of Dinga's asset is $36,000. So new asset should be recorded at $36000