Statement of Financial Accounting Standards No. 157 - Paper Audit ...
Statement of Financial Accounting Standards No. 157 - Paper Audit ...
Statement of Financial Accounting Standards No. 157 - Paper Audit ...
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14 Concepts <strong>Statement</strong> 7 discusses the essential elements <strong>of</strong> a present value measurement<br />
(paragraph 23) and provides reasons why an entity’s estimates <strong>of</strong> cash flows might differ from<br />
those used by marketplace participants (paragraph 32). Appendix E incorporates those<br />
paragraphs.<br />
d. Paragraph A6:<br />
At December 31, 20X2, a manufacturing facility with a carrying amount <strong>of</strong><br />
$48 million is tested for recoverability. At that date, 2 courses <strong>of</strong> action to<br />
recover the carrying amount <strong>of</strong> the facility are under consideration—sell in<br />
2 years or sell in 10 years (at the end <strong>of</strong> its remaining useful life). <strong>of</strong> 10 years.<br />
The facility has identifiable cash flows that are largely independent <strong>of</strong> the cash<br />
flows <strong>of</strong> other assets.<br />
e. Paragraph A7:<br />
As indicated in the following table, the possible cash flows associated with<br />
each <strong>of</strong> those courses <strong>of</strong> action are $41 million and $48.7 million, respectively.<br />
They are developed based on entity-specific assumptions about future<br />
sales (volume and price) and costs in varying scenarios that consider the<br />
likelihood that existing customer relationships will continue, changes in<br />
economic (market) conditions, and other relevant factors.The following table<br />
shows the range and probability <strong>of</strong> possible estimated cash flows expected<br />
to result from the use and eventual disposition <strong>of</strong> the facility assuming that<br />
(a) it is sold at the end <strong>of</strong> 2 years or (b) it is sold at the end <strong>of</strong> 10 years. Among<br />
other things, the range <strong>of</strong> possible estimated cash flows considers future sales<br />
levels (volume and price) and associated manufacturing costs in varying<br />
scenarios that consider (a) the likelihood that existing customer relationships<br />
will continue and (b) future economic (market) conditions. The probability<br />
assessments consider all information available without undue cost and effort.<br />
Such assessments are by their nature subjective and, in many situations, may<br />
be limited to management’s best judgment about the probabilities <strong>of</strong> the best,<br />
worst, and most-likely scenarios.<br />
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