Homework SourseNEED THE SOLUTION ON EXCEL with formula view Fixed assets ar
NEED THE SOLUTION ON EXCEL with formula view
Fixed assets are the primary assets of New Hope Corporation. As of December31, 2014 New Hope is having liquidity problems. New Hope\'s borrowing base is limited to 60% of its net fixed assets. The CFO has been entertaining the idea of changing from GAAP to IFRS for accounting purposes Analyze the accounting for each fixed asset class using GAAP. Assume New Hope uses straight Line depreciation and takes a full year depreciation in year of acquisition Prepare a memo to the CFO formally articulating your analysis and recommendation to New Hope a. b. Asset-Frontier Building 30 year life acquired 10 years ago at a cost of $60,000,000. Fair value at end of 2014 was estimated to be $40,000,000. How would adopting the fair value option affect the valuation of the building?Solution
Frontier Building
Building was acquired 10 years ago with a life of 30 years at $60,000,000. Depreciation would be $2,000,000 every year.
After charging depreciation for 10 years, book value of building would be $40,000,000 at end of 2014. The fair value of asset on 31st December, 2014 is even $40,000,000. Adopting fair value option would not have any impact on vale of asset.
Machine Shop Equipment
Equipment was purchased five years ago on 01st January, 2010 at $10,000,000 having useful life of 10 years. So depreciation of $1,000,000 would be provided every year. Book value of equipment on 31st December, 2014 is 5,000,000.
Fair value of equipment at end of 2014 is $1,000,000 against which discounted cash flows are $3,000,000. Therefore equipment shall be valued at $3,000,000 on 31st December, 2014 and further impairment of $2,000,000 would be created.
Restaurant Equipment
Equipment at $10,000,000 was acquired four years ago having life of 6 years and salvage value of $1,000,000. Accordingly depreciation at $1,500,000 would be provided every year. At end of year 2012, book value shall be $7,000,000. However it was impaired by $200,000 to 6,800,000.
Later depreciation of $1,700,000 would have been charged for year 2013 and 2014 for estimated remaining life of 4 years. So book value of equipment at end of 2014 would be $3,400,000.
Had no impairment been created, book value at end of 2014 would have been 4,000,000. Therefore impairment reserve of $600,000 can be reversed at end of 2014.
Hospital Equipment
Equipment is purchased in beginning of current year at $12,000,000 having useful life of 8 years. Further motor which is major component of equipment also has useful life of 8 years. The equipment would depreciate at $1,500,000 annually.
Accordingly book value of asset at end of 2014 would be 10,500,000.
