Fixed Asset impairment

Question 1

Fixed Asset Impairment

Answer 1

The carrying amts of fixed assets held for use and to be disposed of need to be reviewed at least annually or whenever events or changes in circumstances indicate that the carrying amt may not be recoverable.

Question 2

Test for Recoverability (GAAP)

Answer 2

When a fixed asset is tested for impairment, the FCF expected to result from the use of the asset and its eventual disposition need to be estimated.
If the sum of undiscounted expected FCF is less than the carrying amount, an impairment loss needs to be recognized.
2 Steps

Question 3

Calculation of the Impairment Loss (IFRS)

Answer 3

Use a one-step model in which the carrying value of the fixed asset is compared to the fixed asset’s recoverable amt.
Recoverable amt as the greater of the asset’s fair value less costs to sell and the asset’s value in use. Value in use is the present value of the FCF expected from the fixed asset.
The reversal of impairment losses is allowed.