Impairment

PASS Key for testing PP&E or an intangible asset with a finite life for impairment?

-Determining the impairment: Use undiscounted future net CFs -Amount of impairment: Use FV or discounted CFs

Pass Key: Important to remember the following rules when performing your calculations under US GAAP.

-Determining the impairment: use undiscounted future net CFs -Amount of the impairment: Use FV or discounted (PV) future net CFs

How to test impairment of Intangible Asset with Indefinite Lives

One-step impairment test Generally not possible to estimate total future CFs expected to result from the use of the assets and its disposition. As a result, an intangible asset with an indefinite life is tested for impairment by comparing the FV of the intangible asset to its carrying amount. If the assets FV < carrying amount, an impairment loss is recognized in an amount equal to the difference. Not necessary if after assessing relevant qualitative factors, an entity determines that it is not more likely than not that the FV of the indefinite-life intangible asset is less than its carrying amount.

Under IFRS, an impairment loss for an intangible asset other than goodwill is calculated using?

One-step method model in which the CV of the intangible asset is compared with the recoverable amount. IFRS defines the recoverable amount as the greater of -the asset's FV less costs to sell and -the asset's value in use Value in use in the PV of the future CFs expected from the intangible asset. IFRS allows the reversal of impairment losses.

Reporting the impairment loss for PP&E

Reported as a component of income from continuing operations before income taxes or in a statement of activities (related to NFP entities). The impairment loss is recognized by reducing the carrying value of the asset to its lower FV. Restoration of previously recognized impairment losses is prohibited under US GAAP unless the asset is held for disposal.

Impairment of PP&E

The carrying amount of fixed assets held for use and to be disposed of need to be reviewed at least annually or whenever events or changes indicate that the carrying amount may not be recoverable.

Calculation of the impairment loss

The impairment loss is calculated as the amount by which the carrying amount exceeds the FV of the asset

How to test impairment of Intangible Asset with Finite Life?

Two-step impairment test Step 1: The carrying amount is compared with the sum of the undiscounted cash flows expected to result from the use of the asset and its eventual disposition (recoverability test) Step 2: If carrying > total undiscounted future CFs, then the asset is impaired and an impairment loss = to the difference b/n the carrying amount of the asset and its FV is recorded.

US GAAP vs. IFRS - Fixed asset impairment loss

Under IFRS calculated using one-step model in which the carrying value of the fixed asset is compared with the fixed asset's recoverable amount. IFRSs define the recoverable amount as the greater of the asset's FV less costs to sell and the asset's value in use. Value in use is the PV of the future CFs expected from the fixed asset. IFRSs allow the reversal of impairment losses.

Impairment of PP&E Test for Recoverability

When a fixed asset is tested, the future CFs expected to result from the use of the asset and its eventual disposition needs to be estimated. If the sum of undiscounted expected (future) CFs is less than the carrying amount, an impairment loss needs to be recognized.

An impairment loss is reported as a component of?

income from continuing operations before income taxes, unless the impairment loss is related to disc ops. The carrying amount of the asset is reduced by the amount of the impairment loss. Restoration of previously recognized impairment losses is prohibited, unless the asset is held for disposal

Under GAAP - the impairment test applied to an intangible asset other than goodwill is determined by?

the asset's life an intangible asset with a finite life is amortized and an intangible asset with an infinite life is not amortized

When should the carrying amount of intangibles and fixed assets held for use and to be disposed of needs to be reviewed?

At least annually or whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

PASS Key - Under US GAAP Finite life vs. Indefinite life

Characteristics - Finite - Useful life is limited Indefinite - life extends beyond the foreseeable future or cannot be determined. Amortization - Finite - Over useful economic life Indefinite - None Impairment test - Finite - Two-step test 1. Undiscounted net CFs 2. FV Indefinite - One-step test 1. FV or PV