Home Computer Case

Case 04-3 : Home Computer, Inc. Kamontip Sakdivorapong ______________________________________________________________________________________________ Home computer, Inc. has 3 business segments: Computer manufacturing, printer manufacturing and retail store. (1) computer manufacturing: Home computer will discontinue its video monitor operations at Seattle plant and establish a replacement in Sacramento. Other component parts will continue to be manufactured at the Seattle facility. The company will scrap the equipment and “special interior building configuration assets” related to the video monitor operations. According from ASC 310-10-20 Glossary, Asset group refer as “An asset group is the unit of accounting for a long-lived asset or assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.” Therefore, Home Computer can classify the disposal of the assets, the equipment and the “special interior building configuration assets”, as an asset group that is held and used. This is because Home Computer will continue to operate the video monitor until the facility in Sacramento is ready in 10 months. As to the changes in circumstances, according from ASC 360-10-35-21(f), Home Computer would, therefore, have to test for a long-lived asset for recoverability.

ASC 360-10-35-21 A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The following are examples of such events or changes in circumstances: ……… f. A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50