Financial accounting 1

I really don't mean to be rude S.M.Serba., but I don't think you should be answering accounting student's questions. The last couple of responses I've read from you have been totally wrong.

First, a few days ago you told some student that impairment doesn't apply to capital assets, when clearly it does (FAS 144 "Accounting for the Disposal and Impairment of Long Lived Assets")

In this current response, you show a loss as a credit (when, obviously, if its a credit then its' a gain). Also, you incorrectly state that this is not a gain, but the recovery of an unrealized loss. Wrong again. It is a gain. Let's say this was the company's only transaction, and they closed out unrealized loss to retained earnings at the end of the year. In the next year, they sell the investment above book value (cost less allowance) and you seemingly would have this booked as a credit to loss instead of a gain. Assuming this is the only transaction for the period, the loss account (which should be zero or a debit balance) would have a credit balance.

Also, I'm not sure what country's GAAP you guys are following, but LCM is not the way to account for marketable equity securities under US GAAP. Per US GAAP, marketable equity securities should be measured at fair value, with the offset to earnings or equity (other comprehensive income), depending on whether the investment is classified as "trading" or "available for sale" (as defined in FAS 115).

SS> Miegs Lam Mallouk "Financial Accounting, 9th Canadian Edition"

SS> Page 211, Short-Term Investments:

SS> "The enitre cost of purchasing the stock (including brokerage SS> commission) is SS> debited to the Temporary Investment - Equity Securities account."

SS> There is no Broker Expense in this case.

SS> I have a problem with the 100 commission on the sale. Usually it is SS> the SS> BUYER that pays the commission. EG. the sale of a house...

SS> NO, you do not have a GAIN. You partially RECOVERED an UNREALIZED SS> loss.

SS> Ibid, page 213.

SS> ".. if there is a recovery in the market value, the recovery of SS> unrealized SS> losses may be recognized up to no more than the original cost."

SS> Since you did not ACTUALLY sell the investment when you wrote it SS> down, you SS> did not have an ACUTAL loss. You can only realize a GAIN when you SS> sell an SS> asset for more than it cost you to purchase it. If the market SS> recovers, but SS> not completely, then you partially recover an *unrealized* loss.

SS> Therefore when you DO sell the stock for 7000, you have only SS> ACTUALLY SS> realized a 1000 loss.

In your original response to the poster, you said it was a 900 loss and show it as a credit. So I'm not entirely convinced you know what you are talking about.

MP> I really don't mean to be rude S.M.Serba., but I don't think you MP> should be MP> answering accounting student's questions. The last couple of MP> responses I've MP> read from you have been totally wrong.

MP> First, a few days ago you told some student that impairment doesn't MP> apply to MP> capital assets, when clearly it does (FAS 144 "Accounting for the MP> Disposal MP> and Impairment of Long Lived Assets")

MP> In this current response, you show a loss as a credit (when, MP> obviously, if MP> its a credit then its' a gain). Also, you incorrectly state that MP> this is MP> not a gain, but the recovery of an unrealized loss. Wrong again. MP> It is a MP> gain. Let's say this was the company's only transaction, and they MP> closed MP> out unrealized loss to retained earnings at the end of the year. In MP> the MP> next year, they sell the investment above book value (cost less MP> allowance) MP> and you seemingly would have this booked as a credit to loss instead MP> of a MP> gain. Assuming this is the only transaction for the period, the MP> loss MP> account (which should be zero or a debit balance) would have a MP> credit MP> balance.

MP> Also, I'm not sure what country's GAAP you guys are following, but MP> LCM is MP> not the way to account for marketable equity securities under US MP> GAAP. Per MP> US GAAP, marketable equity securities should be measured at fair MP> value, with MP> the offset to earnings or equity (other comprehensive income), MP> depending on MP> whether the investment is classified as "trading" or "available for MP> sale" MP> (as defined in FAS 115).

From the response they gave me, they are from Canada. Is thier GAAP that much different than ours?

Shouldn't be too different.

The type of impairment the original poster was inquiring about does not apply to Fixed Assets per the wording of the question.

Per Meigs Lam and Mallouk "Financial Accounting Ninth Canadian Edition, page

363" impairment of Plant Assets occurs when the equipment cost cannot be recovered through future use or sale, to marked down to net realizable value. Eg. obsolecence.

In that case you would not adjust the original cost of the equipment, you would Debit Loss resulting from Obsolesence and Credit Accumulated Depreciation - Plant Equipment.

I apologize for any errors of debits and credits previously posted.

If I check my math again, the original cost of the asset was 8,200, including broker commission. The writedown amount was from 8,200 to 6,000, an Unrealized Loss of 2,200. Thus, original purchase:

DR Temporary Investment 8,200.00 CR Cash

8,200.00

Writedown:

DR Unrealized Loss on Temporary Investments 2,200.00 CR Allowance for Excess of LCM

2,200.00

Now, when the temporary asset was sold, the seller received 7,000.00 less a

100.00 sellers commission. Lets say that we expense the commission to Commissions Expense.

First lets deal with the partial recovery of the writedown:

DR Allowance for Excess of LCM 1,000.00 CR Recovery of Unrealized Loss

1,000.00

Thus, NET allowance for any losses is 1,200.00. Book value of Temporary Investment is 8,200.00 less 2,200, add 1,000 is 7,000. Net decrease in market value is still 1,000.00.

Now the sale:

DR Cash 6,900.00 DR Commission Expense 100.00 DR Loss on Disposal of Temporary Investment 1,200.00 CR Temporary Investment

8,200.00

Now, my only question would be, if the original value of the stock was

8,000.00 and we add the brokerage fee of 200.00, has the investment really decreased in value 2,200.00 when the price goes down to $6.00 a share, or has it only gone down $1,000.00?

Sorry about the previous post.... Occasionally I ought not to be allowed to post on account of being too tired...

You're right. I DID miss that.

I had to look at the original post TWICE to find it...

Ok, so IF all the shares were sold, then my reply would be correct.

Being that it is only HALF of the shares that are sold, lets deal with the recovery of the writedown:

DR Allowance for Excess of LCM 2,200.00 CR Recovery of Unrealized Loss

2,200.00

Thus, NET allowance for any losses is 0.00. Book value of Temporary Investment is again at 8,200.00

Now the sale:

DR Cash 6,900.00 DR Commission Expense 100.00 CR Temporary Investment 4,100.00 (half of the original investment) CR Gain on Sale of Temporary Investment 2,900.00

There remains 4,100.00 in shares still retained by the purchaser. The investment at the time of the sale has recovered any unrecognized losses.

Oh, man, have you ever been audited? If so, did the auditor still have any hair left when done?

500 shares at $7/share (less commission of $100) does not equal $6900... it equals $3400.

Does not trading what you purchased for $4100 for $3400 result in a $700 realized loss? Forget about entries and just look at it in its simplest form. And think logically... is it at all possible to profit by selling something for less than you paid for it? A gain is profit. There is no profit here.

You know what, I'm getting more confused the more I try to do this. I'm gonna drop the whole subject.

YES, I've been audited for GST once and for tax twice. And the auditor was already bald when he arrived. I was TRYING to answer people's questions between doing my own work, and squeezing in lunch (when I get it).

I'm NOT the first person to get things WRONG you know.

We never learn anything by giving up.

I'm sorry if I offended you. You just came on so strong the first time to the OP's question that I felt compelled to keep pointing out your errors.

I know how limited tme is for answering questions and know that sometimes we make mistakes when trying to do something so quickly. Name one accountant who has NEVER made a mistake and I'll sell you the Brooklyn Bridge.

Nevertheless, HAD the OP's question included selling ALL 1000 shares, my initial response is correct.

Hi Serba, I do not mean to be rude but are you for real? Do you really work for an accounting firm? A few days ago you blast some accounting 1 student, and after all you cannot even get the answer.

I think you should get some basic training in accounting. Have you thought of going to school? it may help, and then you can use this site for help. Maybe Beverly can help she seems to be on the ball.

You have to know when to quit.

Give up already you need to go back to school and learn some basics.

Yes. If you were a regular lurker on this newsgroup, you would have seen MANY of my earlier postings. You might conclude that I am no troll had you seen them.

No. I don't work for an accounting firm. When did I ever say that? What led you to assume that? I *AM* the controller for a medium sized construction company. I worked there for 5 years between 1998 and 2002, took a 2 1/2 year break to do independent contract work for several accountants, and the construction company *ASKED* me back 7 months ago. AND I still do independent work for several clients. None of whom have been audited, if you must know. And neither have I.

BASIC training in accounting? I am currently working on my Canadian CGA equivalents. I have the equivalent of a Level 3 CGA student but I am lacking my Law credit. I *ALREADY* have 3 community college certificates in business, computerized accounting and bookkeeping systems.

I *normally* work things out on paper or in a spreadsheet when they get a little complicated or there are a bunch of details. This time I did not, and I also missed the fact that only 500 of the 1000 shares were sold. I *WAS* responding from work on a break, and was a little distracted.

And I *DID* quit, putting my answer on this newsgroup. But not before being thoroughly flamed by people like you. And not before putting the ENTIRE answer on paper to get my head wrapped around it.

I've been posting to this group for 5 years and this is the first time I've managed to screw something up, but not for lack of knowledge but for lack of time to properly work out the answer. You might also look at the alt.comp.software.financial.quickbooks group. I post regularly there as well. I am also on the MYOB and Simply Accounting Smargroups lists as well.

BTW, I haven't seen *YOU* posting here before. What are YOUR qualifications that you can judge me in this manner? You assume too much.

Agreed, I've been following the group for a while now and you have stood out as one of those participants who at least tries to help.

We cannot always be right and I don't think we should get flamed for trying to be helpful. I cannot imagine working in an office where every single mistake results in a roasting. For those with a good attitude, mistakes are a learning opportunity.

I don't think students should be coming here expecting help with their assignments or accounting issues. If they are at home and cannot get issues figured out with the help of their notes/textbooks, then perhaps best to wait until the next day of instruction to ask their professor or other classmates.

Not that I'm an accounting expert... I've been in school myself for the last 1.5 years brushing up on accounting that I studied 25 years ago but never used much as my career evolved on the technical side with computers. This is the last place I'd come with questions. Note that comment isn't intended as collective jab towards those knowledgeable accounting type participating here, but rather that I'd like to figure out the problems on my own or with the help from my instructors.

Thanks Joe.

Hi Serba, Listed below you will find in detail time and date you responded to one question. I was not assuming I was stating the facts based on all your incorrect answers. Sorry if you take offense to my response.

Below are Matthews and Beverly's responses did not take a fit from those comments?

You asked about my qualifications what difference does it make you have listed yours which seems very impressive on paper HOWEVER; can you do accounting?

Nov 10, 11:04 pm Nov 11, 7:32 pm Nov 11, 7:24 pm Nov 11, 10:18 pm Nov 11, 7:19 pm Nov 14, 2:29 pm Nov 14, 10:23 pm Nov 14, 10:30 pm Nov 15, 2:48 pm Nov 16, 3:39 pm Nov 16, 3:39 pm Nov 17, 7:49 pm

First response to you

1. Beverly Nov 12, 1:47 am

Newsgroups: alt.accounting From: Beverly - Find messages by this author

Date: Sat, 12 Nov 2005 00:47:32 -0600 Local: Sat, Nov 12 2005 1:47 am Subject: Re: Financial accounting 1

- Show quoted text -

Can you explain to me why you have credited a loss? You are so right about having this group do homework. The OP would fail the class if he/she was taught to credit a loss on disposal of an asset. A credit would be a gain, but it is obviously a loss. I'm not normally this blunt or rude, but your attitude along with your ineptitude doesn't speak well for your firm. In fact, this accounting

1 student came up with the proper loss figure and you didn't

Second response to you

1. Matthew Pomeroy Nov 12, 12:47 pm

Newsgroups: alt.accounting From: "Matthew Pomeroy" - Find messages by this author

Date: Sat, 12 Nov 2005 17:47:08 GMT Local: Sat, Nov 12 2005 12:47 pm Subject: Re: Financial accounting 1

I really don't mean to be rude S.M.Serba., but I don't think you should be answering accounting student's questions. The last couple of responses I've read from you have been totally wrong. First, a few days ago you told some student that impairment doesn't apply to capital assets, when clearly it does (FAS 144 "Accounting for the Disposal and Impairment of Long Lived Assets")

Third response

1. Beverly Nov 15, 1:26 am

Oh, man, have you ever been audited? If so, did the auditor still have any hair left when done?

500 shares at $7/share (less commission of $100) does not equal $6900... it equals $3400. Does not trading what you purchased for $4100 for $3400 result in a $700 realized loss? Forget about entries and just look at it in its simplest form. And think logically... is it at all possible to profit by selling something for less than you paid for it? A gain is profit. There is no profit here.

You are not getting off that easy Joe Canuck, if a person ask for help in this forum, then it is a community of people who knows about accounting, and they have varied, and in many cases vast amount of experience and knowledge.. Where is the best place to learn. Is it with one isolated teacher and a text book, or is with a vast wealth of knowledge in this forum, or perhaps everyone learns better from your suggestion. If a person is rude; then they deserve to be flamed, especially if they are WRONG. I hope you don't have children, and tell them that because of how I learn stuff 25 years ago that is the way you should learn it today. I am so disappointed because I am in the technical field and my peers are the most helpfull when it comes to technical problems. Hear me telling my clients, "I am sorry I can't help you, you should have learn this in school, go ask your instructor".

We are a community, so we help each other, why do you think schools are now doing peer-learning, because they discovered that kids learn better when they interact with their peers. It is called cooperative learning. Adult learn just as well as kids through peer-learning. Most things I learned in the technical field did not come from a book, but from my peers. It is now my time to give some back.

I am out.