Question

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

                            Cost                                                                $120

                            Accumulated Depreciation                             $ 20

                            Undiscounted Future Cash Flow                   $ 95

                            Fair Value                                                       $ 80

                            Costs to Sell                                                        0

                            Value-in-use (PV of Future Cash Flow)         $ 90

Questions:

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

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

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

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

[5] Under IFRS, what is the recoverable amount of PP&E?

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

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

Answer 1

1)The carrying value of PP&E before impairment = Cost - accumulated depreciation

= 120 - 20

Book value of PP&E = 100

2) There are to steps to identify the impairment

Step 1: Compare the undiscounted cash flow and the carrying value of asset, if cash flow is greater than carrying value of the asset, then impairment is required and if carrying value is higher, then impairment is required. We need to calculate the impairment loss in the next step.

Undiscounted cash flow = 95

Carrying value = 100

95<100, So yes, impairment is required

Step 2: Calculation of impairment loss

= Carrying Value - Fair value

=100 - 80 = 20

The journal entry is

Impairment loss Dr. 20

To Property, Plant and Equipment Cr 20

3) The carrying value of asset after impairment = Cost - accumulated depreciation - impairment

= 120-20-20

= 80

4) The carrying value before impairment, under IFRS = Cost - Accumulated depreciation

= 120-20 = 100

5) Under IFRS the asset is impaired, when the carrying value is greater than recoverable amount

Carrying value > Recoverable amount

Recoverable amount is higher of the asset's fair value less cost of sell and asset's value in use

=80-90 = (10)

6)Impaired loss = Carrying value - Recoverable amount

= 100-(10)

= 110

Impairment loss Dr 110

To Accumulated impairment losses Cr 110