a) Rosewood follows the IFRS standard, which means that if there is an opportunity to reverse any impairment loss, they will be able to do so. Ignoring depreciation, at the end of 2012, Rosewood can reverse $800,000 of the impairment loss recorded in 2006. The total impairment loss in 2006 was recorded at $1,000,000, which was debited to impairment loss and credited to accumulated impairment loss. At the 2012 year end, the carrying amount of buildings, had impairment not occurred in 2006 is $5,800,000. The 2012 year end carrying amount of buildings shows an $800,000 difference at only $5,000,000. This $800,000 difference is the amount of impairment loss that can be reversed. This is journalized as a debit to accumulated depreciation of buildings, and credited to impairment loss. 2006 Impairment loss 1,000,000 Accumulated Impairment Loss 1,000,000
Carrying amount, Dec. 31, 2012 (had impairment not occurred in 2006) 5,8000,000
Carrying amount, Dec. 31, 2012 _5,000,000_ Difference: 800,000 reverse $800,000 of impairment loss of 2006
Dec 31, 2012 Accumulated depreciation- Building 800,000 Impairment loss 800,000
b) Blaze Mountain follows the ASPE standard, which means that if there is an opportunity to reverse any impairment loss, they will not be able to do so. Under the IFRS (International Financial Reporting Standards), the company must determine each year if indicators of impairment are present and must perform an impairment test. Going along with this, the company is also allowed to reverse any impairment loss, if possible. This is why Rosewood was able to reverse some of their impairment loss. Blaze Mountain follows the ASPE (Accounting Standards for Private Enterprises), which does not allow reversals of impairment loss. There is no annual requirement to determine if indicators of impairment exist, although if it is apparent they do exist, an impairment test must be performed. Along with this guideline, impairment losses cannot be reversed. This means that there will only be debits made to the impairment loss account, and no credits.
c) Rosewood
Profit margin= profit__ = 180,000__ = 0.08 net sales 2,250,000
Asset turnover= net sales_________ = 2,250,000_ = 0.25 average total assets 9,000,000
Rosewood, after impairment loss reversals
Profit = 180,000 + 800,000= 980,000
Average total assets = assets@ year end- assets@ year beginning = 9,000,000 2 = 18,000,000
Add reversal + 800,000 = 18,800,000 (divide 18,800,000 by 2 to get new average total assets) = 9,400,000
Profit margin= profit__ = 980,000__ = 0.44 net sales 2,250,000
Asset turnover= net sales_________ = 2,250,000_ = 0.24 average total assets 9,400,000
