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

Determining the risk preferences

Risk Preferences. Identify each of the following as being consistent with risk-averse, risk-neutral, or risk-seeking behavior in investment project selection. Explain your

Assignment on multinational corporation expansion

Imagine that you are a senior business manager for a U.S.-based multinational company. You have been informed by your supervisor that your Company needs to consider expandin

Prepare the issuance journal entry

Prepare the issuance journal entry and the first annual payment using straight-line. All bonds were dated January 1, 2015 and pay annually - Prepare the journal entry to issu

How many ticket packages will george need to sell to break

George plans to sell his customers a special for a ski package weekend. He is able to purchase the package from the providers for $175 each. The ticket packages will be sold

Determine whiteweilers take home pay

Julie Whiteweiler made $930 this week. Only social security (fully taxable) and federal income taxes attach to her pay. Whiteweiler contributes $100 each week to her company's

What kinds of questions do internal auditors ask

The Foundation for Critical Thinking states that all subjects have a fundamental thought process. In order to understand the thought process, they recommend raising some qu

Analysts reassess manufactured earnings

Analysts reassess Manufactured Earnings' future performance as follows: growth in book value increases to 12 percent per year, but the ROE of the incremental book value is

Outstanding common stock

Meredith Corporation acquired 20% of the outstanding common stock of Cairo Corporation on December 31, 2010. The purchase price was $1,250,000 for 50,000 shares.

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