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Change in Estimate Example: Asset cost $80,000 and we estimated salvage value of $6,000 and a 10 year useful life. We used straight line. a.
Change in Estimate Example: Asset cost $80,000 and we estimated salvage value of $6,000 and a 10 year useful life. We used straight line. a. Now in year 4 we estimate a total useful life of 15 years. b. Now in year 4 we estimate salvage value of 0. Impairment Example: Asset had historical cost of $100,000, estimated salvage value of $5,000, and an estimated useful life of 10 years. We used straight line and are now done with year 4. FMV is now $20,000. We estimate that net future cash flows will be $20,000 in year 5, $20,000 in year 6, and then we will sell it for $10,000. Question: Test whether there is an impairment? If yes, how much is the impairment loss? Oil and Gas Example: Well A Well B Drilling Cost $100,000 $100,000 Barrels 0 1 million Question: Decide the amount to capitalize and expense using full cost method? How about using successful efforts method
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