Question

AAA corp. had the following PP&E values on Dec. 31, 2018.

                            Cost                                                                $ 20

                            Accumulated Depreciation                              $   5

                            Undiscounted Future Cash Flow                    $ 12

                            Fair Value                                                        $ 11

                            Costs to Sell                                                         0

                            Value-in-use (PV of Future Cash Flow)          $ 13

Questions:

[1] Under U.S. GAAP, prepare the journal entry for PP&E impairment if necessary.

[2] Under U.S. GAAP, what is the dollar amount of PP&E carrying value after impairment?

[3] Under IFRS, prepare the journal entry for PP&E impairment if necessary.

[4] Under IFRS, what is the dollar amount of PP&E carrying value after impairment?

Answer 1

Under US GAAP, determining an impairment and calculation of the impairment loss involves two steps Step 1: Recoverability Test - As assets is considered be impaired if the assets carrying value (Cost less Accumulated depreciation) is greater that the undiscounted future cash flow generated from that asset. Step 2: Loss Measurement - If asset is found be impaired based on the recoverability test, then the asset value is written down the fair value on the balance sheet and impairment loss equal excess carrying value over the fair value less cost to sale The loss recoveries are not permitted i.e reversal of impairment is not done. Cost Accumulated Deprecition date ($5) Carrying Value $45 Expected future net cash flow $12 Fair Value less cost to sale ($11-$0] $11 Remaining useful life (in years) Ans 1 In this case the asset is imapaired because carrying value i.e. $45 is higher than the undiscounted future cash flow i.e $12 $50 $45 Credit Impairment loss Carrying Value Less: Fair Value ($11) Impairment Loss $34 Journal Entry Date Particulars 31-Dec-18 Impairment Loss Equipment (To Record impairment loss) Ans a 2 Carrying value on 31/12/2018 Less: Impairment Loss Revised Carrying Vaue 31/12/2018 Debit $34 $34 $45 ($34) $11

Under IFRS Impairment loss is the amount by which the assets carrying value is in excess of recoverable amount. Carrying Amount is the amount at which the assets are reported in the balance sheet after deducting depreciation and impairment loss if any Recoverable amount is higher of the assets fair value less cost to sale those assets and its value in use. Value in use means the present value of the future cash flow generated from the asset. Impairment test is done when there is an indication of the asset may be have impaired except in case of goodwill and intangible assets with indefinite useful live which is be done annually. calculate the impairment loss Fair Value $11 Less: Cost sale $0 (A) $11 Ans 3 $13 Value in use (B) Recoverable amount if higher of (A) and (B) $13 Impairment loss = Carrying Value less Receoverable amount Impairment loss = ($45 - $13] Hence, the asset is impaired by $32 Debit Credit Journal Entry Date Particulars 31-Dec-18 Impairment Loss Equipment |(To Record impairment loss) $32 $32 Carrying value on 31/12/2018 Less: Impairment Loss Revised Carrying Vaue 31/12/2018 $45 ($32) $13