Yet another applicability of Principal of Conservatism @ US-GAAP 
The answer is soo damm obvious to this… In 20X3, Baxter Company owned machinery that became permanently impaired. As of December 31, 20X3, the machinery had a book value of $800,000, expected undiscounted future cash flows of $200,000, and a market value of $100,000. Baxter also owned a warehouse that, as of December 31, 20X3, had a book value of $1,200,000, expected undiscounted future cash flows of $3,000,000, and a market value of $2,500,000. Based on the above scenario, the best treatment of the above events on the financial statements would be to: a. Record both the loss on the machinery and the gain on the warehouse in 20X3. b. Recognize the loss on the machinery and the gain on the warehouse on the financials in 20X3 or report these events on the financials in later years. c. Report the loss on the machinery in 20X3, but exclude any recognition of the gain on the warehouse until it is sold. d. Either report the loss on the machinery in 20X3 or defer the recognition of the loss to later years; however, the gain on the warehouse cannot be recorded on the financials until it is sold. - Dinesh S
only machinery would be recognized. choice c c. Report the loss on the machinery in 20X3, but exclude any recognition of the gain on the warehouse until it is sold.
C.
Dreary - What does this mean? “ٍIt makes a lot of sense if you know the purpose of diluted EPS very well.”
Can they defer the loss recognition to later years? Do they have to check the market price (fair value) of all their assets every year and recognize the loss immediately? What if the fair value is not correct in that year? Once loss is recognized, they can’t adjust upward in the later years.
C is correct, bang on. - Dinesh S