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Which of the five disclosures is most informative? Which is least informative? Why?

Which of the five disclosures is most informative? Which is least informative? Why?

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Which of the five disclosures is most informative? Which is least informative? Why?

Disclosures Under IFRS, if a firm uses discounted cash flow analysis to value a cash-generating unit, the firm must disclose the discount rate. If the cash-generating unit includes goodwill or other indefinite-lived intangible assets (such as trademarks), then the firm must also dis- close other assumptions made to value that cash-generating unit (such as projected rev- enue growth rates and projected profit margins). Firms are encouraged but not required to disclose those assumptions even if a cash-generating unit does not include goodwill or identifiable intangible assets with indefinite lives. Impairment in the Recession of 2008-2009 As the recession of 2008–2009 worsened, firms throughout the world recorded impairment charges or explained why impairment charges were not. The follow- ing firms included impairment disclosures in 2008 or 2009 shareholders reports that were interesting because of the size of the impairment, the lack of impairment, or the disclosure itself: Nestlé (Exhibit 1–-IFRS) Nestlé is one of the world's largest consumer products companies. During the past several years, Nestlé acquired Powwow, a large European water distributor; Ralston- Purina, a large U.S.-based pet food and animal feed producer; Gerber, a U.S.-based baby food manufacturer, and Dryer's, a U.S.-based ice cream producer. Exhibit 1 in- cludes Nestlé's impairment test disclosures for those major acquisitions. The Swatch Group (Exhibit 2–IFRS) The Swatch group is one of the world's largest watch manufacturers. Exhibit 2 shows its 2008 impairment test disclosures. Royal Bank of Scotland (Exhibit 3–IFRS) The Royal Bank of Scotland (RBS) is one of the world's largest banks. In recent years, RBS recorded significant goodwill when it acquired NatWest, Charter One, ABN Amro and Churchill. Because of the worldwide banking crises, RBS recorded substantial goodwill impairment charges, as disclosed in Exhibit 3. News Corp. (Exhibit 4–U.S. GAAP) News Corp., headed by Rupert Murdoch, acquired The Wall Street Journal in 2007. Internet advertising drove many newspapers into bankruptcy and others into near bankruptcy. Many analysts and investors thought The Wall Street Journal's unique market niche and relatively wealthy readers would isolate the journal from Inter- net competition. However, in 2008 the News Corp. recorded significant impairment charges, primarily for the WSJ acquisition. Those impairment charges are disclosed in Exhibit 4. CBS Corporation (Exhibit 5–U.S. GAAP) The worldwide recession and the Internet hurt most media companies, including CBS Corporation. Exhibit 5 provides CBS's 2008 impairment disclosure.
Transcribed Image Text:Disclosures Under IFRS, if a firm uses discounted cash flow analysis to value a cash-generating unit, the firm must disclose the discount rate. If the cash-generating unit includes goodwill or other indefinite-lived intangible assets (such as trademarks), then the firm must also dis- close other assumptions made to value that cash-generating unit (such as projected rev- enue growth rates and projected profit margins). Firms are encouraged but not required to disclose those assumptions even if a cash-generating unit does not include goodwill or identifiable intangible assets with indefinite lives. Impairment in the Recession of 2008-2009 As the recession of 2008–2009 worsened, firms throughout the world recorded impairment charges or explained why impairment charges were not. The follow- ing firms included impairment disclosures in 2008 or 2009 shareholders reports that were interesting because of the size of the impairment, the lack of impairment, or the disclosure itself: Nestlé (Exhibit 1–-IFRS) Nestlé is one of the world's largest consumer products companies. During the past several years, Nestlé acquired Powwow, a large European water distributor; Ralston- Purina, a large U.S.-based pet food and animal feed producer; Gerber, a U.S.-based baby food manufacturer, and Dryer's, a U.S.-based ice cream producer. Exhibit 1 in- cludes Nestlé's impairment test disclosures for those major acquisitions. The Swatch Group (Exhibit 2–IFRS) The Swatch group is one of the world's largest watch manufacturers. Exhibit 2 shows its 2008 impairment test disclosures. Royal Bank of Scotland (Exhibit 3–IFRS) The Royal Bank of Scotland (RBS) is one of the world's largest banks. In recent years, RBS recorded significant goodwill when it acquired NatWest, Charter One, ABN Amro and Churchill. Because of the worldwide banking crises, RBS recorded substantial goodwill impairment charges, as disclosed in Exhibit 3. News Corp. (Exhibit 4–U.S. GAAP) News Corp., headed by Rupert Murdoch, acquired The Wall Street Journal in 2007. Internet advertising drove many newspapers into bankruptcy and others into near bankruptcy. Many analysts and investors thought The Wall Street Journal's unique market niche and relatively wealthy readers would isolate the journal from Inter- net competition. However, in 2008 the News Corp. recorded significant impairment charges, primarily for the WSJ acquisition. Those impairment charges are disclosed in Exhibit 4. CBS Corporation (Exhibit 5–U.S. GAAP) The worldwide recession and the Internet hurt most media companies, including CBS Corporation. Exhibit 5 provides CBS's 2008 impairment disclosure.
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