liter- ature that addresses the recognition and measurement of impairment losses
ID: 2601470 • Letter: L
Question
liter- ature that addresses the recognition and measurement of impairment losses for property, plant, and equipment and intangible assets. "We have a significant amount of goodwill on our books from last year's acquisition chill Corporation. Also, I think we may have a problem with the assets of some of our factories out West. And one of our divisions is currently considering disposing of a large group of depreciable assets." of Chur- Your task as assistant controller is to research the issue. Required: 1. Obtain the relevant authoritative literature on accounting for the impairment of property, plant, and equip- ment and intangible assets using the FASB Accounting Standards Codification. You might gain access at the FASB website (www.fasb.org). Cite the reference locations regarding impairment of property, plant, and equipment and intangible assets. 2. When should property, plant, and equipment and finite-life intangible assets be tested for impairment? 3. Explain the process for measuring an impairment loss for property, plant, and equipment and finite-lit 4. What are the specific criteria that must be met for an asset or asset group to be classified as he gible assets to be held and used. ld-for-sale? SB Accounting Standards Codification that contains these What is the specific citation reference from the FA criteria? he process for measuring an impairment loss for property, plant, and equipment and finite-life intan- gible assets classified as held-for-sale.Explanation / Answer
2. As per ASC 360-10, Impairment of long lived assets, if circumstances associated with the property, plant, equipment and finite life intangible assets have changed or a significant event has occurred that may affect the recoverability of the carrying amount of the long-lived asset, an impairment indicator exists and the entity should test the long-lived asset for impairment.
3. As per US GAAP, ASC 360-10, an impairment loss is recognized in the following process:
a. Long loved assets are first tested for impairment by comparing the carrying amount of asset with the sum of the future undiscounted cashflows generated through the use and disposal. If such undiscounted amount is less than the carrying amount, then the asset is required to be booked for impairment loss.
b. Then, fair value of the asset is required to be calculated using the ASC 820. As per ASC 820-10, fair value should be calculated as the "price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date."
c. Then the carrying amount of long lived assets is compared with the fair value as described in step b above. Any excess of carrying amount over such fair value should be recorded as impairment loss.
4. Criteria for asset to be held for sale:
There are six criterias which are are required to be met for categorizing an asset or asset group as held for sale asset.
• Management, having the authority to approve the action, commits to a plan to sell the asset or disposal group
• The asset or disposal group is available for immediate sale (i.e., a seller currently has the intent and ability to transfer the asset (group) to a buyer) in its present condition, subject only to conditions that are usual and customary for sales of such assets or disposal groups
•An active program to locate a buyer and other actions required to complete the plan to sell have been initiated
• The sale of the asset or disposal group is probable (i.e., likely to occur) and the transfer is expected to qualify for recognition as a completed sale within one year
• The long-lived asset or disposal group is being actively marketed for sale at a price that is reasonable in relation to its current fair value.
• Actions necessary to complete the plan indicate that it is unlikely significant changes to the plan will be made or that the plan will be withdrawn
CITATION REFERENCE : (Subtopic 360-10 establishes held for sale criteria in paragraphs 360-10-45-9 through 45-14).
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