Question

A. Where in the codification does it discuss impairments for fixed assets?

B. What is the criteria for determining what levels I should test for impairment?

C. Show a typical journal entry for impairment.

Answer 1

A. In ASC 360 - 10,- Property plant and equipment, it discusses about Impairment of assets. (LONG LIVED ASSETS)

B. If the assets are long lived whose classification is:

1. Long-lived assets held for sale
2. Long-lived assets to be held and used
Long-lived assets to be 'held and used" are tested for impairment

Impairment test
1. Step 1: Test for recoverability when there is an indication that carrying amount may not be recoverable
2. Step 2: Measurement of impairment loss if Step 1 shows that carrying amount is not recoverable

Recoverability test
Carrying amount is not recoverable if (D) < (B)
(B) carrying amount
(D) sum of "undiscounted" cash flows from the asset

Impairment loss
1. An asset is impaired when (E) < (B)
2. Impairment loss = (B) - (E)
(B) carrying amount
(E) fair value

Impairment loss is not reversed
1. If an impairment loss is recognized adjusted carrying amount becomes "new cost basis"
2. Impairment loss is "not" reversed when there is a subsequent increase in fair value

C. Journal entries

For recognition of Impairment loss:

Impairment Loss
To Accumulated Impairment Losses

For Reversal

Accumulated Impairment Losses

Asset

To Gain in Value of Asset

To Revaluation Surplus