On the issue of asset impairment, how does the "two-tier" test work in determining whether an asset has suffered impairm...
On the issue of asset impairment, how does the "two-tier" test work in determining whether an asset has suffered impairment and the amount of the impairment loss?
Homework Answers
The two tier test work is common sense in fair value accounting. First test is recoverability of the book value of the asset. The fair value of the asset is calculated which may be the discounted value of future cash flows from the asset. Fair value can also be the sale price of the asset on the date of the test if the future cash flows cannot be readily determinable. This can be determined by obtaining an invoice from buyers. Second test is to check whether the fair value calculated is more or less than the book value of the asset. If the fair value is less than the book value, an impairment loss to the extent of the difference is arrived at.
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On the issue of asset impairment, how does the "two-tier" test work in determining whether an asset has suffered impairm...
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How could the auditor determine whether or not this asset has not been impaired?
How could the auditor determine whether or not this asset has not been impaired?
Recording Impairment Loss on Asset Held for Sale Down Manufacturing Company has a small facility called Plant XT that has not been used for several years because of low product demand. The company does not expect to use the facility in the foreseeable future. Efforts are being made to sell the plant for $700,000, but a realistic recovery amount is $400,000 (net of disposal costs). The accounting records show cost, $2,900,000; accumulated depreciation, $1,600,000. Required a. Provide the entry that...
Question #5-Asset Impairment The abrasives group of Chemical Products Inc. (CPI) has been suffering a decline in its business, due to new product introductions by competitors. At 31 December 20X5, the assets of the abrasives cash generating unit are shown as follows (in millions) on the company's SFP: Cost Accumulated Net Book Depreciation Value Equipment (10-year life) Fixtures (10-year life) Patent rights (40-year life) 400 $180 220 125 55 70 80 70 10 $605 $305 $300 An impairment test indicates...
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