FAR 3 - M8 IMPAIRMENT

Question 1

How is impairment loss in intangibles calculated?

Answer 1

CV > FV = IMPAIRMENT LOSS
FV < CV = IMPAIRMENT LOSS
unrecoverable
bring the CV down to the FV

CV xxx
less impairment loss (xxx)
new basis

Question 2

Is there subsequent reversal of a previously recognized impairment loss under GAAP?

Answer 2

Subsequent reversal of a previously impairment loss is PROHIBITED unless the intangible asset is held for sale or disposal.

Question 3

Long lived assets that are impaired can only have the CV restored if they are held for disposal or sale. What is the limit on the write ups?

Answer 3

If CV is restored, the write up can only be up to the amount of the write down.

CV = 1000
FV = 200 (or undiscounted future cash flows-
compare with this first)

CV 1000
imp loss ( 800)
new basis 200

subsequent review FV = 1200

CV 200
prev w/down 800
new basis 1000

Question 4

How often do you need to test the long-lived assets’ recoverability?

Answer 4

At least annually or when events or changes in circumstances indicate that the CV may NOT be recoverable.

Question 5

Which intangible asset is subject to the recoverability test for impairment?

Answer 5

Intangibles with limited life (Ex patent)

Question 6

How is impairment tested?

Answer 6

Compare CV vs undiscounted future cash flows

CV                          = 170
und future CF        =  175
FV                          =150
NO impairment   CV < und future CF
\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_\_

CV = 170
und future CF = 135
FV = 150

Impaired CV > und future CF (170 > 135)
Impairment loss = CV - FV (170 - 150 = 20)

Question 7

Where is impairment loss reported on the P&L?

Answer 7

Impairment loss is part of continuing operations BEFORE tax