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

Recording the account reinstatement

If a customer pays her bill after her account has already been written off, the company receiving the payment should record the account reinstatement with:

Interpretation of the z-score concentrates

Robertson identifies four main elements which cause changes in the financial health of a company: trading stability; declining profits; declining working capital; increase i

Discuss the meaning of the valuation or allocation assertion

Discuss the meaning of the valuation or allocation assertion as it relates to the allowance for doubtful accounts. Discuss factors that bear on whether the allowance for doubt

Amount of goodwill to be recognized in acquisition

On January 1, 2010, Glenville Co. acquired an 80% interest in Acron Corp. for $500,000. Determine the amount of goodwill to be recognized in this acquisition.

What are consolidated sales and cost of goods sold for 2011

There were no sales from Pot to Skillet.Intra-entity sales had the same markup as sales to outsiders. Pot still had40% of the intra-entity sales as inventory at the end of 201

Interest on borrowed funds

Evan Soft Ltd. has assets of Rs. 2,80,000 which have been financed with Rs. 64,000 of debts and Rs. 1,10,000 of equity and a general reserve of Rs. 18,000. The firm's total

A portion of the current assets section

Analysis of accounts receivable and allowance for bad debts determine ending balances. A portion of the current assets section of the December 31, 2013, balance sheet for Gibb

Financial reports influence business decisions

How does information from financial reports influence business decisions? Why is it important for business managers to understand the information found on financial reports?

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