Impairment

Question 1

What is the difference between GAAP Fixed Asset Impairment vs IFRS fixed asset impairment?

Answer 1

IFRS: it’s a one step method using this calculation:

Recoverable amount - carry value
or
[FV - costs to sell] - carry value (if FV - costs is bigger)
or
[PV Cashflow] - carry value (if PV cashflow is bigger)

Recoverable amount is pick the bigger number:
Pick [FV - costs to sell] -or- [PV cashflow]

GAAP: It’s a two step method.

First step to find if there is an impairment loss or not.
» Calculation: Undiscountinued future cash flow - Net carry value = negative value or positive value

If negative value, then impairment loss exists. Go to step 2)

Second step: Fair value or PV CFLO minus carry value (if assets held for sale) = impairment loss

-or-

[Fair value or PV CFLO - carry value] + disposal/selling costs = impairment loss

Question 2

What is the calculation for GAAP two step method on impairment loss on fixed asset (assets held for disposal; dispose asset)?

Answer 2

Step 1) Undiscounted future net cash flows - net carry value = negative number (if possible number, then impairment does not exist)

Step 2) Asset held in use impairment:

Fair value or PV future net cash flow 
- net carry value 
------------------------------ 
= Impairment loss 
\+ cost of disposal (selling costs) 
-------------------------- 
= total impairment loss

Then: take this impairment loss to reduce Asset’s value (write down asset) on Balance sheet (usually to zero and no longer appear on balance sheet)
Then: No more depreciation

Also: Cannot restore the impairment loss.
GAAP does not allow restore impairment loss

Question 3

Impairment on intangible assets (i.e. patents, goodwill, etc.)

GAAP: how to do impairment loss on FINITE life intangible asset?

Answer 3

Two step method:

Step 1) Undiscounted cash flows - asset’s carry amount = negative amount (if positive, no impairment, no do step 2)

Step 2): Then: Fair value - Carry value = impairment loss.

note: Only use fair value on finite life intangible assets.
Do Not do the [PV CFLO - carry value]. This because it’s hard to determine CFLO coming from intangible asset.

Question 4

Impairment on intangible assets (i.e. patents, goodwill, etc.)

GAAP: how to do impairment loss on INFINITE life intangible asset?

Answer 4

Only do one step method (GAAP):

FV - CV = negative (-$$$) –> impairment loss

If, FV - CV = positive (+$$$) –> no impairment loss

Question 5

Impairment on intangible assets (i.e. patents, goodwill, etc.)

IFRS: how to do impairment loss on INFINITE life intangible asset?

Answer 5

IFRS: one step method:

Recoverable amount - carry value

Recoverable amount = pick the biggest number:
(FV - costs to sell)
-or-
PV of CFLO

Question 6

IFRS: how is fixed asset impairment calculated?

Answer 6

One step method:

Recoverable amount - carrying value

Recoverabel amount is: pick the bigger number.
Pick (FV - costs to sell) -or- Pick PV CFLO

So: it’s:
[FV - costs to sell] - carry value
-or-

[PV CFLO] - carry value

Question 7

What is the calculation for GAAP two step method on impairment loss on fixed asset (held in use)?

Answer 7

Step 1) Undiscounted future net cash flows - net carry value = negative number (if possible number, then impairment does not exist)

Step 2) Asset held in use impairment:

Fair value or PV future net cash flow
- net carry value
——————————
= Impairment loss

Then: take this impairment loss to reduce Asset’s value (write down asset) on Balance sheet
Then: depreciate this nw asset cost

Also: Cannot restore the impairment loss.
GAAP does not allow restore impairment loss