Determine how to best maximize the amount of net fixed asset

Assignment Help Accounting Basics
Reference no: EM13705329

Question :

Fixed assets are the primary asset of Old Line Manufacturing Company (Old Line). As of December 2011, Old Line is having liquidity problems. Old Line's borrowing base is limited to 60% of its net fixed assets. The CFO has been entertaining the idea of changing from US GAAP to IFRS. The bank has agreed to loan up to 60% of the net fixed assets regardless of whether Old Line uses US GAAP or IFRS for accounting purposes.

Land A

Land is carried at its historical cost of $4.0 million, while its fair value is $5.0 million.

Building B

Building B, with a 30-year life, was acquired 10 years ago at a cost of $60.0 million. The fair value of the building is estimated to be $40.0 million at the end of 2011.

Equipment C

On January 1, 2007, equipment C was acquired at a cost of $10.0 million. It had a 10-year service life with no estimated scrap value. At the end of 2011, there have been technological innovations that may have impaired this equipment, which now has an estimated fair value of $1.0 million. The future undiscounted cash flows from this equipment are estimated to be $5.0 million, while the discounted net present value of the expected cash flows is estimated to be $3.0 million.

Equipment D

This equipment was acquired in 2008 at a cost of $10.0 million. It had a six-year service life with a $1.0 million estimated scrap value. At the end of 2009, the equipment was believed to be impaired and it was written down $2.0 million. At the end of 2011, it no longer appears any impairment reserve is necessary.

Equipment E

This piece of equipment was acquired in 2011 at a cost of $12.0 million. The service life is expected to be eight years and no net salvage value is expected. A major component of this equipment is the motor, which costs $4.0 million and must be replaced every four years.

Equipment F

Construction of this equipment started on January 1, 2011 and was completed on January 1, 2012. Old Line borrowed $20.0 million denominated in US dollars on January 1, 2011 to finance construction of this equipment. The interest rate on this loan was 10%. Old Line made payments to the construction company of $10.0 million on January 1, 2011 and $10.0 million on July 1, 2011. Excess funds during this period were invested at a return of 6%. Old Line also incurred a $1.0 million exchange rate loss on other borrowings during 2011.

Required

- Analyze the accounting for each fixed asset class using US GAAP and IFRS. Assume the Company uses straight-line depreciation for all its fixed assets and takes a full year of depreciation in the year of the addition.

- Based on your analysis, determine how to best maximize the amount of net fixed assets.

- Prepare a formal report addressed to the CFO of Old Line formally articulating your analysis and recommendations to Old Line.

Verified Expert

Reference no: EM13705329

Shareholders in the annual report

Write a report in which you present the main idea(s) you think the company should present to shareholders in the annual report. Also, include an explanation of how you would

Entry to record the transaction concept

A corporation sold 14,000 shares of its $10 par value common stock at a cash price of $13 per share. The entry to record this transaction would include:

Accounts payable prepaid insurance

LeadCo School is a newly organized business that teaches people how to inspire and influence others. The list of accounts to be opened in the general ledger is as follows:

Describe two career options with an accounting education

Describe at least two career options someone with an accounting education can pursue. Be sure to reference sources such as the Bureau of Labor Statistics and the American In

Journalize the entry for issuance of the preferred stock

Elston Company is authorized to issue 1,000,000 shares of $1 par value common stock. During 2002, its 1st year of operation the corporation has the following stock transaction

Job cost according to the accounting system

What price would have been charged to the customer if the job required $3,200 in materials and $4,200 in direct labor cost, and the company priced its jobs at 40% above the

Taxes and real estate commission

Talbot Industries is considering launching a new product. The new manufacturing equipment will cost $17M, and production and sales will require an initial $5M investment in NO

Compute the materials price variance

(a) Compute the actual cost per foot for materials for March. (b) Compute the materials price variance and a total variance for materials.

Reviews

Write a Review

 
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd