Case Test 17 39
Case #17–39 a.) Argument for expensing construction cost: According to FASB ASC 36010, an asset should not be carried at a value greater than its service potential. Therefore, the carrying amount of Eagle Mountain should be reduced when future cash flows are less than the carrying amount. MPS should estimate fair value to compute the discounted present value of future cash flows expected from Eagle Mountain.
Based on the information provided, Eagle Mountain is expected to cost more than MPS can ever expect to recover through operations. In my opinion, a great deal of Eagle Mountain’s total cost should be expensed as a loss and written down to fair market value because it’s almost impossible to consider it a productive asset. Considering an asset held for future should be written down if there has been a significant impairment of value, fair value of Eagle
Mountain should reasonably be measured at present value of expected future cash flows. In my opinion as auditor, Eagle Mountain should be reduced to its estimated fair value in accordance with FASB ASC 3601035. MPS should look at industry trends and reasonably estimate what the state utilities would allow them to recover and pursue the project.
Argument against construction costs expensed: It’s virtually impossible to be certain of Eagle Mountain’s future cash flows from operations.
Essentially, recoverable costs from the plant will ultimately be determined by the state utilities commission or whether MPS abandons Eagle Mountain. Eagle Mountain has had considerable cost overruns, ongoing litigation, several delays that have put behind schedule, and is only half completed; therefore, as auditor, I would consider it a huge risk to continue the project. b.) Neither MPS management or the auditor can predict future events or conditions of the
Eagle Mountain project which may cause it to cease to continue as a goingconcern. The
International Auditing and
Based on the information provided, Eagle Mountain is expected to cost more than MPS can ever expect to recover through operations. In my opinion, a great deal of Eagle Mountain’s total cost should be expensed as a loss and written down to fair market value because it’s almost impossible to consider it a productive asset. Considering an asset held for future should be written down if there has been a significant impairment of value, fair value of Eagle
Mountain should reasonably be measured at present value of expected future cash flows. In my opinion as auditor, Eagle Mountain should be reduced to its estimated fair value in accordance with FASB ASC 3601035. MPS should look at industry trends and reasonably estimate what the state utilities would allow them to recover and pursue the project.
Argument against construction costs expensed: It’s virtually impossible to be certain of Eagle Mountain’s future cash flows from operations.
Essentially, recoverable costs from the plant will ultimately be determined by the state utilities commission or whether MPS abandons Eagle Mountain. Eagle Mountain has had considerable cost overruns, ongoing litigation, several delays that have put behind schedule, and is only half completed; therefore, as auditor, I would consider it a huge risk to continue the project. b.) Neither MPS management or the auditor can predict future events or conditions of the
Eagle Mountain project which may cause it to cease to continue as a goingconcern. The
International Auditing and