300883 Flashcards
Asset Group
An asset group is the unit of accounting for a long-lived asset or assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities.
FASB ASC Glossary
Which of the following conditions must exist in order for an impairment loss to be recognized?
The carrying amount of the long-lived asset is less than its fair value.
The carrying amount of the long-lived asset is not recoverable.
Both I and II
II only
I only
Neither I nor II
II only
FASB ASC 360-10-35-17 establishes a recoverability test to determine when an impairment loss is to be recognized. If the undiscounted sum of estimated future cash flows from an asset or asset group is less that the asset’s or asset group’s book value, an impairment loss may need to be recognized. The impairment loss is the difference between the book value of the asset(s) and its (their) fair value. Note that there is not an impairment loss if the fair value exceeds the carrying amount.
Carrying Amount (Book Value)
The carrying amount or book value is the net amount at which an item is reported in the financial statements of the enterprise. For a receivable, the FASB ASC Glossary indicates the carrying amount is the “face amount increased or decreased by applicable accrued interest and applicable unamortized premium, discount, finance charges, or issues costs and also an allowance for uncollectible amounts and other valuation accounts.”
For a payable, the FASB ASC Glossary indicates the carrying amount is the “face amount increased or decreased by applicable accrued interest and applicable unamortized premium, discount, finance charges, or issue costs.”
Fair Value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants at the measurement date.
Impairment
Impairment is the condition that exists when the amount of a long-lived asset (asset group) carried on an organization’s books exceeds its fair value. An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment is based on the carrying amount of the asset (asset group) at the date it is tested for recoverability, whether in use or under development. An impairment loss is measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value.
FASB ASC 360-10-35-15; GASB 1100.107
2241.19
Long-Lived Assets to Be Held and Used
An entity must review long-lived assets and certain identifiable intangible assets whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
2241.20
Examples of such events or circumstances that may indicate that the carrying amount of an asset may not be recoverable include the following:
a. A significant decrease in the market price of a long-lived asset
b. A significant adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition
c. A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, including an adverse action or assessment by a regulator
d. An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset
e. A current-period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset
f. A current expectation that, more likely than not, a long-lived asset will be sold or otherwise disposed of significantly before the end of its previously estimated useful life
2241.21
If these or other events or changes in circumstances indicate that the carrying amount of a long-lived asset other than goodwill that an entity expects to hold and use may not be recoverable, the entity should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. The estimated future cash flows should include only the net cash flows (cash inflows less associated cash outflows) that are directly associated with and that are expected to arise as a direct result of the use and eventual disposition of the asset. (Those estimates should exclude interest charges that will be recognized as expensed when incurred.)
2241.22
If the sum of the estimated future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the entity may have to recognize an impairment loss. The impairment loss, if any, to be recognized is any excess of the asset’s carrying amount over its fair value. Notice, however, that no impairment loss is to be recognized unless the asset’s estimated future cash flows (ECF) are less than its carrying amount, even if the asset’s carrying amount (CA) exceeds its fair value (FV).
FASB ASC 360-10-35-17
