Asset Impairments

Question 1

Recognizing impairment loss is another example of what principal in accounting?

Answer 1

conservatism

Question 2

Impairment is an _________ loss in value where depreciation is an ____________ loss in value.

Answer 2

unexpected, expected

Question 3

Under GAAP, what is the two step process is determining impairment losses?

Answer 3

1. Is the asset impaired? Impaired if BV > undiscounted sum of future cash flows.
2. Measurement: Impairment = BV - fair value

Question 4

Under IFRS, what is the two-step process in determining impairment losses?

Answer 4

1. Is the asset impaired? Impaired is the recoverable amount < book value
2. Measurement: Impairment = BV - recoverable amount

Question 5

Under IFRS, what is the recoverable amount in impairment testing?

Answer 5

The greater of the present value of future cash flows and fair value - costs to sell

Question 6

What is the process of impairment testing for indefinite life intangible assets?

Answer 6

A one step process, compare book value to fair value.

Question 7

What is the process of determining impairment loss for goodwill? What are the two rules along with it?

Answer 7

Fair value - book value (including goodwill) = impairment loss

1. Loss cannot exceed the book value of goodwill
2. subsequent reversal is not allowed

Question 8

When should assets such as plant and equipment and patents be tested for goodwill?

Answer 8

only when changes in circumstances indicate

Question 9

When should goodwill be tested for impairment?

Answer 9

at least annually