FAR 4-5: Fixed Asset Impairment

Question 1

What assets are subject to the impairment test?

Answer 1

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

NOTE: Test must be done at least annually.

Question 2

Describe the impairment test for recoverability under GAAP.

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

Name the 2 rules for performing impairment calcs under GAAP.

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 FV of asset determined using SFAS No. 157: Impairment loss = FV - Carrying value

Question 4

How is impairment evaluated under IFRS?

Answer 4

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

• FV - Costs to sell
• Value in use (present value of future cash flows)

Question 5

How is the impairment loss reported in the financial statements?

Answer 5

As a component of income from continuing operations before income taxes.

The carrying amount of the asset is reduced.

Question 6

Is restoration of impairment losses permitted under GAAP & IFRS?

Answer 6

• 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.