OFSR

Approach

Materiality

Issue

There are some indications of the impairment regarding to the land and the greenhouse purchased
during the year. The issue is whether the write-down is required.

Analysis

ASPE 3063 – A long-lived asset shall be tested for recoverability whenever events or changes in
circumstances indicate that its carrying amount may not be recoverable.

 The soil proved to be low quality and some plots were too shady, thus, the land did not meet
the expectation of the tenants

ASPE 3063 – For purposes of recognition and measurement of an impairment loss, a long-lived asset
shall be grouped with other assets and liabilities to form an asset group at the lowest level for which
identifiable cash flows are largely independent of the cash flows of other assets and liabilities.

 As the greenhouse itself won’t be able to generate the cash inflows, thus, it will group with the
land when assessing the impairment (land $50K + greenhouse $35K)

ASPE 3063 – Estimates of future cash flows used to test the recoverability of a long-lived asset shall
include only the future cash flows (cash inflows less associated cash outflows) that are directly
associated with, and that are expected to arise as a direct result of, its use and eventual disposition.
These cash flows include the principal amount of any liabilities included in the asset group, but not
interest that will be recognized as an expense when incurred.

Carrying amount $85K (land $50K + greenhouse $35K) > Fair value $50K  impairment $35K

Recommendation

An impairment exists  write down of $35K is required

Decreased the long-term assets  no impact on covenant
Issue

The exotic shrubs have not been planted or inspected by the president, and PPI has recognized the
revenue from this transaction. The issue is whether PPI can recognize the revenue from this contract in
20X2 FY.

Analysis

ASPE 3400 – Revenue can be recognized when the following criteria is met:
1) collection is reasonably assured
a. Total Tower is PPI’s largest commercial client, thus, no indication that there will be an
issue for collection
2) risk and rewards have been transferred
a. t
3) reasonable assurance exists regarding the measurement
Recommendation

Issue

Analysis

Recommendation

Issue

Analysis

Recommendation