F3/M8 Impairment

Question 1

(T/F): Intangible assets with a finite life have a two-step test for impairment (recoverability test, no present value)
Example: Covenant not to compete, copyright, PP&E

Answer 1

True;

1. Compare BV to Sum of undiscounted cash flows
2. If BV> Sum, difference between BV and FV is recorded

Question 2

(T/F): If an intangible asset has an indefinite life (Goodwill), then only the one-step test is used for impairment

Answer 2

True;

- Is BV > FV

Question 3

(T/F): PP&E use the two-step impairment test, with Step 1 evaluating the sum of UNdiscounted Cash flows, and Step 2 evaluating FV to BV

Answer 3

True

Question 4

(T/F): Restoration of previously impaired assets is not permitted under GAAP unless the asset is held for sale (disposal)

Answer 4

True

Question 5

(T/F): IFRS uses the recoverable amount when determining impairment.

Answer 5

True;
The recoverable amount is the greater of…
1. PV of future Cash Flows
2. Recoverable amount (FV - Costs to sell)