Matt Holmes recently joined Klax Company as a staff accountant in the controller's office. Klax Company provides warehousing services for companies in several Midwestern cities. The location in Dubueqe, Iowa, has not been performing well due to increased competition and the loss of several customers that have recently gone out of business. Matt's department managers suspects that the plant and equipment may be impaired and wonders whether those assets should be written down. Given the companys prior success, this issue has never arisen in the past, and Matt has been asked to conduct some research on the issue.
a. What is the authoritative guidance for asset impairments? Briefly discuss the scope of the standard. (i.e. explain the types of transaction to which the standard applies.)
b. Give several examples of events that would cause an asset to be tested for impairment. Does it appear that Klax should perform an impairment test? Why?
c. What is the best evidence of fair value? Describe alternate methods of estimating fair value.
d. Your friend Harry does not understand the concept of an indefinite-life intangible asset. He wonders, "does this mean the life is infinite?" What does the authoritative literature say about indefinite-life intangible assets?
e. What guidance does the codification provide the disclosure of research and development (R&D) costs?
f. What is the nature of the authoritative guidance for advertising costs for entertainment companies?