Introductory example – gain on disposal of an item of property, plant, or equipment On Dec 31, 01, entity E sells a machine for CU 10. Payment is effected in cash on the same day. On the same day, the machine”s carrying amount is CU 9. This results in the following entry in which the gain on disposal is recognized on a net basis (IAS […]

Ridgewood Healthcare Enterprises is in possession of a nonoperational 50-bed hospital. The after-tax value of the land is $2,000,000. The equipment and the building are fully depreciated and have an after-tax market value of $3,250,000. Ridgewood could either sell off its property or convert it into a new state-of-the-art acute care hospital. An analysis of the market reveals that the facility could attract 8,400 discharges […]

Preparation of a statement of cash flows Entity E”s statement of financial position as at Dec 31, 01 is presented as follows: ASSETS Dec 31, 01 Dec 31, 00 EQUITY AND LIABILITIES Dec 31, 01 Dec 31, 00 (a) Building 1 290 0 (e) Share capital 260 160 (h) Building 2 0 40   Profit for year 40 0 (c)                  Truck 20 0 (c) […]

Faith Hospital, a taxpaying entity, wants to replace its current labor-intensive telemedicine system with a new automated version that would cost $3,000,000 to purchase. This new system has a five-year life and would be depreciated over a straight-line basis to a salvage value of $250,000. The current telemedicine system was purchased five years ago for $1,500,000, has five years remaining on its useful life, and […]

Acquisitions and disposals of subsidiaries On Dec 31, 01, entity E acquires 100% of the shares of entity S1 (which is free of debt) for CU 11. Payment is effected in cash on the same day. On the acquisition date, the fair values of S1″s assets are as follows: Machines 3 Buildings 2 Finished goods 3 Cash and cash equivalents 2 Goodwill 1 Purchase price […]

Alvin Hospital, a taxpaying entity, is considering a new ambulatory surgical center (ASC). The building and equipment for the new ASC will cost $5,000,000. The equipment and building will be depreciated on a straight-line basis over the project’s five-year life to a $2,000,000 salvage value. The new ASC’s projected net revenue and expenses are as follows. Net revenues are expected to be $4,800,000 the first […]

Blackmoore Health System, a taxpaying entity, is considering a new orthopedic center. The building and equipment for the new center will cost $7,000,000. The equipment and building will be depreciated on a straight-line basis over its five-year life to a $2,000,000 salvage value. The new orthopedic center’s projected net revenue and expenses are listed below. The project will be financed partially by debt capital. Interest […]

Substance over form – retention of title On Dec 31, 01, wholesaler W delivers merchandise under retention of title to retailer R. On that date, the significant risks and rewards of ownership are transferred. W retains neither effective control nor continuing managerial involvement to the degree usually associated with ownership. The carrying amount of the merchandise in W”s statement of financial position is CU 4. […]

Nature of expense method vs. function of expense method Entity E operates in retail sales, i.e. E purchases merchandise from wholesalers and resells to customers. The following table presents the expenses from the year 01 according to their nature and function: Cost of sales Administrative expenses Distribution costs Total Raw materials and consumables used 18 1 1 20 Employee benefits expense 5 2 2 9 […]

Marleboro Memorial Hospital is expecting its new cancer center to generate the following cash flows: Givens Years 0 1 2 3 4 5 Initial investment ($20,000,000) Net operatios cash flows ($4,000,000) ($6,000,000) ($10,000,000) ($12,000,000) ($25,000,000) a. Determine the payback for the new cancer center. b. Determine the net present value using a cost of capital of 12 percent. c. Determine the net present value at […]