APT, Inc. - An Application of Fair Value

Abstract

The curriculum of US colleges and universities commonly emphasizes generally accepted accounting principles (GAAP) as applied in the US. However, students at these universities are likely to work in environments in which they are expected to be well versed in both US GAAP and International Financial Reporting Standards (IFRS). The APT, Inc. case helps students in a US environment, and is equally applicable for students in other countries where IFRS is required or accepted for financial reporting. The case is based on an actual apartment complex located on land leased from a US university, and focuses on the year-end impairment testing of that apartment complex. As such, the guidance of both International Accounting Standard 36 and IFRS 13 must be consulted to determine whether or not an impairment loss must be recognized. Unlike most fair value or impairment examples included in textbooks, students are not provided with either the fair value or value in use information. Rather they must estimate the higher of the fair value or value in use based upon information provided in the case. As such, students are required to apply higher order learning skills as they grapple with numerous decisions, e.g., the appropriate discount rate, projections of cash flow information, relevant comparable rental properties and their recent selling prices, and possible cost information. Master of Accountancy and MBA students who used the case report it improves their understanding of the ways in which fair value may be determined, and that accounting guidance may not always provide all the answers to accounting questions. Overall, students reported they found the case a valuable learning experience and that the case increased their understanding of the complexities of financial reporting and the extent they thought about fair value issues in financial reporting.

Please do not pass on this case to the IMA Educational Case Journal for expedited review.