Question

Both US GAAP and IFRS require that property, plant and equipment and finite-lived intangible assets be impaired under certain circumstances. As a general statement, these assets are impaired when their “value” is lower than their carrying value.
While the general understanding of impairment is simple enough, it is much less clear how a company should determine whether a given long-lived asset is impaired. Read the relevant portions of the BC in SFAS No. 144 (paragraph B15), SFAS No. 121 (paragraphs 59-68) and IAS 36 (paragraphs BCZ95-BCZ107).

Discussion Question

State one of the alternatives for determining whether an asset has been impaired and provide an argument for and an argument against this alternative. Reply in one paragraph with a 4 sentence limit.

Read ASC 360-10-35-17 and IAS 36, paragraphs 18, 31, 58 and 59. Which alternative did each standard setter choose? Answer inn one paragraph with a 3 sentence limit.

Answer 1

Impairment of assets is done under both IFRS and US GAAP, this means that when the asset's fair market value is less than the carrying value. Impairment losses are recognised in the Income statement to give a clearer picture of the assets a company hold.

Argument in favour is that yes the assets should be checked for impairment because some of the assets are carried on their historical value which doesn't reflect their value which could be realised today.

Argument in repel : Assets like Land etc. May generally have good intrinsic value, but their market price sometimes go low, impairment losses recognized that time may not be correct because the value may again go high or impairment may reverse in future.

US GAAP:

Checking for impairment: when the carrying value of reporting unit is greater than implied fair value.

Recognition of loss= carrying value of the asset - fair value of asset.

Reversal is prohibited.

IFRS Treatment :

Carrying value is greater than recoverable amount of asset.

Recoverable amount is the highest of fair value less costs to sell or value in use.

Reversal is prohibited.