Kim Park Non Monetary

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9-110-017
REV: JUNE 4, 2010

DAVID HAWKINS

Kim Park (A): Long-lived Nonmonetary Assets
While attending a U.S. graduate business school, Kim Park, a South Korean exchange student, developed a deep interest in the materials covered in her first-year MBA accounting course. This growing interest led her to seek help from her study group, which included Jane Wilson (an American certified public accountant with global accounting experience), in understanding how and why the accounting concepts and rules discussed in class might be applied in practice—particularly, as Kim said, “to transactions and events that didn’t seem to fit the rules.” At the study group meeting where Kim first asked for help in furthering her understanding of accounting, Jane had explained to Kim:

Not all of accounting complications can—or should—be covered in a first-year MBA course. As in the training for other professions, many matters are dealt with in advanced classes and others, while discussed routinely at some point in the program, are not settled in any beginning or advanced class. Nevertheless, some problems that are not specifically covered in assigned reading can be solved satisfactorily by relating them to the basic accounting principles you have already learned. Even if there are specific rules covering an accounting question you bring to the study group, reasoning from basic principles is the approach we want to adopt as we try to help you understand and resolve your accounting questions. If there are relevant specific rules, I’ll direct you to them after we discuss the problem. At subsequent study group meetings, using specific examples, Kim raised a number of accounting questions related to long-lived non-monetary assets with limited lives, such as buildings.

Prior Knowledge
Kim understood from the background readings for her accounting course that the Financial Accounting Standards Board (FASB) had defined assets as
“Probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events.”1

1 Financial Accounting Standards Board, Statements of Financial Accounting Concepts No. 6, “Elements of Financial Statements.”
________________________________________________________________________________________________________________ Professor David Hawkins prepared this case. The character mentioned in the case is fictional. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management.

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Kim Park (A): Long-lived Nonmonetary Assets

Kim was also aware that the International Accounting Standards Board (IASB) believed that an asset should be recognized in the balance sheet
“[W]hen it is probable that the future economic benefits will flow to the entity and the asset has a cost value that can be measured reliably.”2
Furthermore, Kim understood from the same background readings that under U.S. Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS) cost model, long-lived, nonmonetary assets were initially recorded at the sum of the expenditures necessary to acquire and prepare an asset for its intended use. Finally, in the case of long-lived nonmonetary tangible assets, with limited lives, Kim understood that their original cost should be systematically reduced over their useful life through a charge to earnings by a process called “depreciation.” As far as Kim could gather, the GAAP...
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