Fasb Topics Research Paper

Adjustments to write down of Cost or Market 330-10-35-1 A departure from the personify basis of set the memorial is required when the utility of the goods is no longer as great as their be. Where there is evidence that the utility of goods, in their disposal in the ordinary course of business, will be less than cost The inventory has a financial importance as it is purchased and recorded at its diachronic cost or original cost.With honour to a perpetual inventory system, inventory accounts argon continually controlled as goods be purchased and placed directly into the inventory account and past later taken knocked out(p) when sold. Therefore the inventory is properly cleard within the period it is sold. Furthermore valuing the inventory with FIFO right on reports the ending inventory at its market value. When ending inventory is reported at market value, before making proper year adjustments unexpected changes occur in the ordinary course of business create the market t o be lower then the cost basis of the inventory.This departure from the cost basis of pricing the inventory requires the utility of inventory is no longer as great as its original cost. The ASC allows summations to be valued with Lower of Cost or Market when evidence is proving the future utility of the inventory drops to a lower place its historical cost. The determination of the businesses cost basis for their online inventory and determination of the market calls for ruling the least common multiple with the conservatism principal to resolve the issue between these two divergent measuring sticks (original cost of inventory and the market).Justification for applying Lower of Cost Or Market is the recognition of the holding deprivation resulting from the market being less then the companys current inventory. Which requires a decision between reporting the inventory at its true cost or its replacement cost. The conservatism principle applies with LCM by reporting the inventor y on the balance sheet at replacement cost in the period it occurred also recognizing the loss in the income statement during that same period.Therefore the inventory is reported at its net realizable value on the balance sheet, and the reduction (holding loss) is properly recorded on the income statement. Question 2. Your company has acquired land that is not undergoing activities demand to get it ready for its think use. You have been told to capitalize interest costs (the lesser of the actual or avoidable interest costs) associated with the acquisition of the land. Should you capitalize any interest costs? FASB ASC CITATION Capitalization of reside 35-20-25-3 The capitalization period shall begin when the following third conditions are present a. Expenditures for the asset have been made. ? b. Activities that are necessary to get the asset ready for its intended use are in progress. ? c. Interest cost is being incurred. ? Interest capitalization shall continue as long as t hose three conditions are present. We recognize the general facts stated the land for the businesses investment is purchased, and with respect to the land, activities have not been started yet to prepare it for the intended use deeming it as an asset or investment.In order for the land to be considered expenditure, it would to prove it meets ASCs three requirements of capitalization of interest. The land generally speaking the land mustiness be capitalized to provide evidence capitalization rates will be applied, which furthermore qualifies the land to have payments of cash, transfer of other assets, or accruing the liability of recognized interest. Only if the activities of the land are in preparation for its intended use then capitalization of interest is added to the construction of the long-term asset.From a current stand point of the land, expenditures for the land have not been made yet, the activity required for its intended use is not undergoing, and therefore interest co st incurred sess not be capitalized but rather expensed on the current periods of the income statement. With respect to the facts stated on the lands current progress the interest incurred can not be capitalized. Question 3 You are to portion an asset solitude cost (initiated by an asset retirement obligation). What guidance is given over the elan in hich the asset retirement cost should be allocated to expense? FASB ASC CITATION 410-20-35-2 An entity shall subsequently allocate that asset retirement cost to expense using a systematic and rational method over its reusable life. asset retirement obligation requires properly allocating the asset retirement cost over the assets life of the asset. The allocation of asset retirement cost that is initiated by the asset retirement obligation includes items that that fall under FASBs issued line of reasoning of Financial Accounting Concepts also known as SFAC No. 6 Elements of Financial Statements.The proper manner of allocating requ ires the retirement cost to be properly measured, recognized, and recorded when involving elements in the financial statements. The measurement of the asset must be measured properly at its historical cost. During the ordinary process a business has outflows or using up of its assets in which the expenses are then recognized under the SFAC No. 6 as Expense Recognition Principle. During the period the assets are used up from operational procedures (delivery, and production). The expense accounts recognize amass depreciated cost of the asset over its useful life until it fully depreciated.The combination of the assets cost minus its roll up depreciation results the asset to its net realizable value, when fully depreciated the net amount will have a zero value. The retired asset must then be properly reported in the balance sheet. When a company decides to retire an asset it must reflects the cost properly in the financial statements. When circumstance deck out and its liability of the retirement obligation incur over more reporting periods, the incurring liabilities must be considered as an additional liability over the original liability of allocating the retirement costs.Thus stated the business must recognize and measured as an additional liability (layer) at its fair value. Furthermore guidance to allocate the retirement cost must be expensed in the required systematic way over its useful life. Applying the allocation method doesnt enable the business from capitalizing any amounts of retirement costs and allocating the same amount to the expense account in the same period. Question 4 A warehouse located in Central Iowa was destroyed by an earthquake, the first earthquake ever reported in Central Iowa.You are questioned why you reported it as an extraordinary item, net of tax, rather than a normal loss related to to the business operations. FASB ASC CITATION EXTRAODINARY and UNUSAL ITEMS 225-20-45-2 Extraordinary items are events and transactions that are distinguished by their unusual nature and by the infrequency of their occurrence. When reporting extraordinary and unusual items in the income statement some requirements must be met upon reporting the items.The extraordinary items are events and transactions that are 1. Unusual in nature meaning that underlying event or transaction has a high degree of abnormality that it is unrelated to and 2. Infrequent in occurrence meaning its underlying event or transitions is not reasonably expected to recur in the future. The ASC requires that both of the criteria stated above must bet met in order to report any items as extraordinary or unusual.Reporting extraordinary items in the income statement will be reported by its rude amount and then at net after deducting the income tax expense or saving associated with the item. With respect to Iowa, reporting the warehouse as an extraordinary item from the result of an infrequent earthquake that was unusual in nature since this was the first occurring earth quake ever reported and infrequent because it is a natural contingency and therefore cannot be considered part of normal business operations. Furthermore deeming the warehouse as an extraordinary item.