Fixed Asset Impairment

Question 1

How often do the carrying amounts of fixed assets held for use and to be disposed of need to be reviewed for impairment?

Answer 1

At least annually or whenever events/changes in circumstances indicate that the carrying amount may not be recoverable

Question 2

When does an impairment loss need to be recognized under US GAAP?

Answer 2

If the sum of undiscounted expected (future) cash flows is less than the carrying amount

Question 3

What are the steps in calculating impairment loss under US GAAP?
(two step)

Answer 3

1. Undiscounted FCF (FMV for goodwill/indefinite life intangibles) - NCV
   - — If positive => no impairment loss
   - — If negative => impairment
2. Assets held for:
   - — Use: FV or PV FCF - NCV = Impairment loss (write down asset, depreciate new cost, no restoration permitted)
   - — Disposal: FV or PV FCF - NCV = Impairment loss + Cost of disposal = Total impairment loss (write down asset, no depreciation, restoration permitted)

Question 4

What are the steps in calculating impairent loss under IFRS?

Answer 4

1. Fixed asset “recoverable amount” - Carrying value
   - — If negative = impairment loss

Recoverable amount = Greater of: Value in use (PCVFCF) or NRV (FV - Cost to sell)

Restoration of impairment allowed

Question 5

Under US GAAP, when is a long-lived asset impaired?

Answer 5

If the carrying amount of the asset is greater than its FV and if the carrying amount is not recvoerable

Impairment loss = BV - FV

Question 6

Under US GAAP, where is the impairment loss reported?

Answer 6

As a component of income from continuing operations before income taxes or in a statement of activities

Not extraordinary

Question 7

What to remember when performing calculations of impairment under US GAAP?

Answer 7

1. Determining the impairment — Use undiscounted future net CF
2. Amount of the impairment — Use FV or discounted PV future net CF