H Explain the imparment of property, plant, and equipment and intangible assets

Question 1

Impairments under IFRS

Answer 1

IFRS: Annually assess impairment - A significant decline in the market value of the asset. Impaired when CV; original cost - accumulated depreciation > Recoverable amount; fair value less any selling costs > value in use; PVfCF’s from cont. use
If impaired, Write down assets value to recoverable amount;fair value less any selling costs, on the BS. An impairment loss = CV;Original cost - accumulated depr, - recoverable amount; fair value less any selling costs, and is recognized on the IS.
Reverse a loss (limited to the original impairment loss) if the value of the impaired asset recovers in the future. (The CV of the asset after reversal cannot exceed the CV before the impairment loss was recognized)

Question 2

Impairments under USGAAP

Answer 2

Testing isn’t annual. Testing takes place only when the firm can’t recover carrying value through future use.

Determining impairment and calculating loss. 1. Recoverability test; impaired ; CV > Future undiscounted CF (involves considerable management discretion)
2. Measure the loss: Write down impaired assets value to fair value on the BS and a loss = to excess CV - FV (OR the disc. value of its future CF’s if FV is unknown), recognize on IS

GAAP - no loss recoveries

Question 3

Intangible Assets w/ indefinite lives

Answer 3

Test annually, impairment loss when CV > FV

Question 4

Long-lived Assets Held for Sale

Answer 4

So, an asset held for use becomes held for sale, management must test for impairment - depreciation or amortization stops. Impaired if CV> Net Realizable Value (Fair value - selling costs), write down to NRV and recognize loss on IS

Loss can be reversed for held for sale under both acct. standards, if the assets value recovers in the future, but is limited to the original impairment loss - so CV of asset post reversal cannot exceed CV before impairment was recognized.