F-4 IMPAIRMENT

Question 1

Q: What assets are subject to the impairment test?

FAR 4-37

Answer 1

• Long-lived assets, specific identifiable intangibles, and related goodwill to be held and used.
• Long-lived assets and specific identifiable intangibles slated for disposal.
• Certain assets of a rate-regulated entity.

Note: The test must be done at least annually.

Question 2

Q: Describe the impairment test for recoverability under U.S. GAAP?

FAR 4-38

Answer 2

• If the sum of the undiscounted expected future cash flows is less than the carrying amount, an impairment loss needs to be recognized.

Question 3

Q: Name the two rules for performing impairment calculations under U.S. GAAP.

FAR 4-39

Answer 3

Determining impairment

• Use the undiscounted future net cash flows. An impairment loss exists if total undiscounted cash flows are less than the carrying value.

Amount of impairment

• Use the fair value of asset:
• Impairment loss = Fair value – Carrying value

Question 4

IMPAIRMENT – IFRS

Q: How is impairment evaluated under IFRS?

FAR 4-40

Answer 4

Under IFRS, impairment exists if the carrying value of the fixed assets exceeds the higher of:

• Fair value – Costs to sell
• Value in use (present value of future cash flows)

Question 5

Q: How is the impairment loss reported in the financial statements?

FAR 4-41

Answer 5

• As a component of income from continuing operations before income taxes.
• The carrying amount of the asset is reduced.

Question 6

Q: Is restoration of impairment losses permitted under U.S. GAAP and IFRS?

FAR 4-42

Answer 6

U.S. GAAP

• Restoration (reversal of impairment losses) is permitted for assets held for sale.
• Restoration is prohibited for assets held for use.

IFRS

• Restoration is always permitted.