Clipboard Font Alignment G30 ABD Libby Oil Corporation, a successful efforts com

Question

Clipboard Font Alignment G30 ABD Libby Oil Corporation, a successful efforts company, has capitalized costs on three leases as of 12/31/2019 as follows Lease A LeaseB Lease C 500,000 600,000 700,000 700,000 500,000 550,000 685,000 480,000 610,000 Net capitalized costs Expected undiscounted future net cash flows Fair value (discounted future net cash flows 11 Libby has no other capitalized costs. The leases are located in different counties 12 in Texas. 13 14 Required: If necessary, test the assets for impairment and make any necessary 15 journal entries assumong taxes tripled on all three leases. 16 17 18 19 21 24 26 27 29 31 32

Explanation / Answer

Answer to question As per the applicable accounting standard, impairment loss is the difference of carrying amount and the recoverable amount of the assets, where carrying amount is the amount of assets carried in the books of account and recoverable amount is the higher of following two:- A) Fair market value of the assets or B) Value of cash flow expected to be generated from the assets Particulars Lease A Lease B Lease C Net Capitalised Cost (A) 500000 600000 700000 Expected Undiscounted Cash Flows (B) 700000 500000 550000 Fair Value (C ) 685000 480000 610000 Recoverable Amount (D) - Higher of B & C 700000 500000 610000 Therefore, Impairment Loss (A-D) Nil 100000 90000 Entry For Lease B Impairment Loss A/C ……. Dr. 100000 To Lease B 100000 (Impaiment loss recognised) For Lease C Impairment Loss A/C ……. Dr. 90000 To Lease B 90000 (Impaiment loss recognised)

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