FAR3 - M8

On Dec 31, an entity analyzed a patent with a net carrying value of $500000 for impairment. The entity determined the following: -Fair value: $495000 -Undiscounted future cash flows: $515000 What is the impairment loss that will be reported on the Dec 31 income statement under GAAP?

$0 The carrying value of $500K is less than the undisc FCF of $515K, so no impairment loss is recorded.

A company has a long-lived asset with a carrying value of $120,000, expected future cash flows of $130,000, present value of expected future cash flows of $100,000, and a market value of $105,000. Under GAAP what amount of impairment loss should be reported?

$0 The expected future cash flows of $130K exceed $120K, so there is no impairment, despite the fact that the fair value of the asset and present value of the FCF are less than the carrying amount.

Last year, Katt Co. reduced the carrying amount of its long-lived assets used in operations from $120,000 to $100,000, in connection with its annual impairment review. During the current year, Katt determined that the fair value of the same assets had increased to $130,000. What amount should Katt record as restoration of previously recognized impairment loss in the current year's financial statements under U.S. GAAP?

$0 There will be no amount recorded because a subsequent reversal of an impairment loss is prohibited under GAAP.

A company has a long-lived asset with a carrying value of $120,000, undiscounted expected future cash flows of $130,000, present value of expected future cash flows of $100,000, and a fair value less costs to sell of $105,000. Under IFRS what amount of impairment loss should be reported?

$15,000 Under IFRS, impairment exists when the carrying value of a fixed asset exceeds the fixed asset's recoverable amount. The recoverable amount is he greater of the asset's fair value less costs to sell, and the present value of future cash flows. 105 > 100 120 - 105 = 15

A fixed asset had the following values for the current year: -Carrying value: 12,500 -Fair value: 11,200 -Costs to sell: 600 -Present value of future cash flows: 10,950 What amount will be the impairment loss under IFRS for the current year?

$1550 11200 - 600 = 10600 10950 > 10600 12500 - 10950 = 1550

On Jan 2 Y1, Reed Co purchased a machine for $800000 and established an annual depreciation charge of $100000 over an 8 yr life. During Y4, after issuing Y3 financial statments, Reed concluded that -the machine suffered permanent impairment of its operation value -$200000 is a reasonable estimate of the amount expected to be recovered through use from 1/1/Y4 to 12/31/Y8. In Reed's Dec 31 Y4 balance sheet, the machine should be reported at a carrying amount of:

$160,000 When a permanent impairment has occurred, the book value is reduced with a credit to accumulated depreciation. $200K is now depreciated over 5 yrs at $40K/yr. 200 - 40 = 160

Hudson Corp. operates several factories that manufacture medical equipment. The factories have a historical cost of $200 million. Near the end of the company's fiscal year, a change in business climate related to a competitor's innovative products indicated to Hudson's management that the $170 million carrying amount of the assets of one of Hudson's factories may not be recoverable. Management identified cash flows from this factory and estimated that the undiscounted future cash flows over the remaining useful life of the factory would be $150 million. The fair value of the factory's assets is reliably estimated to be $135 million. The change in business climate requires investigation of possible impairment. Which of the following amounts is the impairment loss?

$35 million 170M-135M = 35M A fixed asset is first tested for impairment, if the sum of the undiscounted future cash flows is less than the carrying amount, a impairment loss needs to be recognized.

Which of the following is an intangible asset that is subject to the recoverability test when testing for impairment?

A patent A patent is an intangible asset with a finite life.

A company reported $6 million of goodwill in last year's statement of financial position. How should the company account for the reported goodwill in the current year?

Determine whether the fair value of the reporting unit is less than the carrying amount and report an impairment loss on goodwill in the income statement The loss on impairment is a debit on the income statement, and a credit to goodwill in the balance sheet

Which of the following is a pair of values that are compared to determine the amount of a possible impairment loss on an intangible asset, with indefinite life, other than goodwill?

Fair value and carrying value

After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements about subsequent reversal of a previously recognized impairment loss is correct under U.S. GAAP?

It is prohibited. Under GAAP, subsequent reversal of intangible asset impairment is prohibited unless the intangible asset is held for disposal.

A company has experienced operating losses from its appliances division for the pat 5 yrs. The division is the lowest level of identifiable cash flows. Having determined the division is the lowest level of identifiable cash flows, the company's next step in performing its impairment test is to:

Perform a recoverability test on the carrying amount of the divisions assets. If the undiscounted future cash flows are less than the carrying value, then an impairment loss would be calculated.

Which of the following conditions must exist in order for an impairment loss to be recognized under GAAP? I: The carrying amount of the long-lived asset is less than its fair value II: The carrying amount of the long-lived asset is not recoverable

The carrying amount of the long-lived asset is not recoverable.

Which of the following statements concerning the impairment of fixed assets under GAAP is true? I: Impairment losses are shown on the income statement net of tax II: The test for recoverability compares the present value of all expected future cash flows produced by the fixed asset to its carrying value III: To determine the amount of any impairment loss, fair value can be used

To determine the amount of any impairment loss, fair value can be used First statement is wrong because it is shown before tax. Second statement is wrong because its the UNdiscounted future cash flows.

When should a long-lived asset be tested for recoverability?

When events or changes in circumstances indicate that its carrying amount may not be recoverable.

Under US GAAP, restorations of carrying value for long lived assets are permitted if an assets fair value increases subsequent to recording an impairment loss for which of the following?

Cannot be reversed if held for use, but can be reversed if held for disposal.