F3 M8 Flashcards
Intangible assets w/o a finite life are tested for impairment annually
Intangible assets w/a finite life are only tested when a triggering event occurs (CV won’t
be recoverable)
Finite life testing has 2 steps
- Step 1: Determine the undiscounted cash flows expected to result from the use of the
asset and compare it to the CV of the asset. If CV > undiscounted cash flows, there is an
impairment and I must move to step 2 - Step 2 (assets held for use): The amt of impairment = CV - FV (or discounted cash
flows) - Step 2 (assets held for sale): CV - FV = amt of impairment + cost of disposal = TOTAL
impairment loss
Undiscounted cash flows = amt of cash you will earn in future that has not been
converted to PV
When testing an asset with a useful life for impairment and impairment is found, the
intangible asset must be written down and the amortization of the asset must be
recalculated based on the impairment loss subtracted from the BV of the asset (if it is
later found that the NRV/CV went up in the future meaning no impairment would be
recorded, that is too bad because restoration costs are not permitted for assets held for
use. For assets held for sale/disc ops, the restoration is permitted only to the extent of
the original impairment loss)
Intangible assets w/o a finite life are tested for impairment w/only one step
Same as step 2 above: The amt of impairment = CV - FV (or discounted cash flows; this
is for assets held for use)
Exception: Qualitative test for impairment is ONLY done for intangibles w/o a finite life if
it is not more likely than not that the FV of the asset is less than its CV (FV > CV; this is
considered step 0 for intangibles w/o a definite life)
Impairment loss is reported in continuing operations unless the loss is related to disc ops
Impairment testing for PPE will always be a 2 step process bc they always have a useful
life (same 2 step process as w/ intangibles w/a finite life)
