Module 26.3: Impairment and Revaluation Flashcards
Under IFRS, what is the revaluation model?
Does it exist for GAAP?
Under GAAP, assets are reported on balance sheet at depreciated cost
Under IFRS, Firms can be reported at depreciated cost and the revaluation model, which permits long lived assets to be reported at its fair value, as long as an active market exists.
What occurs in the revaluation model when fair value is less than and greater than depreciated cost on the first reval date?
lower - loss is taken on the income statement
higher - difference is recorded in revaluation surplus, a component of equity, so net income is not affected.
What occurs in the revaluation model when fair value is less than and greater than depreciated cost on subsequent revaluation dates?
lower - first goes to reduce any existing balance of the surplus, any excess is reported on the income statement as a loss
higher - gain is taken on the income statement to the extent it reverses any previous losses. If all losses are reversed, goes to the surplus account.
Under IFRS how do firms identify an impairment?
They must annually assess events or circumstances that indicate impairment.
Under IFRS when is an asset impaired?
when its carrying value exceeds the recoverable amount.
recoverable amount = greater of its fair value less any selling costs and its value in use.
Under GAAP how do firms identify impairment?
Only test for impairment when events and circumstances indicate that the firm may not be able to recover the carrying value through future use.
Under GAAP what is the two step process to calculate impairment?
1) Test the asset for impairment by applying a recoverability test.
2) Measure the loss.
Under GAAP, what is recoverability?
an asset is impaired if the carrying value is greater than the asset’s future undiscounted cash flow stream.
What happens when a firm reclassifies an asset to “held for sale” from “held for use”
asset is no longer depreciated, if realizable value is less than carrying than a loss is taken on the income statement.
What occurs to the financial statements when an asset is derecognized?
removed from the balance sheet and the difference between sale proceeds and the carrying value of the assset is reported as a gain or loss.
