Question

For each question, (1) provide the citation number (topic and subtopic) that addresses the question and (2) answer the question. Document this under the question, indenting your answer or otherwise indicating it is the answer (bold, underline, different color, etc.)

1. Asset Impairments

Your client provides warehousing services for companies in several midwestern cities. The client has not been performing well due to increased competition and the loss of several customers that have recently gone out of business. Your client suspects that the plant and equipment may be impaired and wonders whether those assets should be written down. Given the company's prior success, this issue has never arisen in the past. Your client has asked you to assist researching this issue.

(a) What is the primary authoritative guidance for asset impairments? Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies).

(b) Give several examples of events that would cause an asset to be tested for impairment.

(c) What is the best evidence of fair value? Describe alternate methods of estimating fair value?

(d) Does it appear that ABC should perform an impairment test? Explain.

Answer 1

Q1: What is the primary authoritative guidance for asset impairments? Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies) ?

Ans; The Primary Authoritative guidance for asset impairments is to maoke sure a person is able to be recorded and deal with impairment as they are realized..The FASB ASC 360-10-35-15 through 360-10-35-49 is the authoritaive guidance for asset impairment. The type of transactions in this standard applies for too long lived assets,which are the intentionally hold by company and use them in their entitiy business. Another transaction is that long live asset, which are hold for sale purpose but havenot been sold and held. Here company bears expected losses. The stansard also includes long lived assets to be disposed by abandonment. And another transaction is that ,the long lived aseet which have been temporarily idled.

Q2; Give several examples of events that would cause an asset to be tested for impairment?

According to FASB impairement of long lived assets states that some evets tobe considered as assets impairments. which are to be done for testing and identifiying;

-Tnagible assets impairment from regulatory changes

-Technological changes

-Significant shifts in customers preferrrence or community outlook.

- The change inasset's usage rate.

The triggering event occurres when the accumulated loss exceeds the total cost of assets.

Q3; What is the best evidence of fair value? Describe alternate methods of estimating fair value?

Ans;The best evedence of fair value is the orderly market transactions. the valuation of fair market value is the quoted prices in the active markets for identical assets and the business entity must access to it.

Methods of estimating fair value;

-The Market approach; which is based upon market transaction involving assets that prevailing in the maarket.

- The Cost Approach; in this process the valuation is done by the amount requireed to replace the service capacity of of an assets.

-The Income Approach;The4 valuation techniques involves estimated future income and profits or cash flows.

Q 4; Does it appear that ABC should perform an impairment test? Explain.

Ans; ABC need to do impairment test. reasons: The time lag between business period and loss of nopt selling goods and services.The client think that the assets might be impaired and written down, which may change the value of assets.