Impairment Loss on Financial Assets Essay  Questions

Impairment Loss on Financial Assets Essay  Questions

I’m working on an accounting question and need support to help me learn.

calculate the impairment loss under IAS and GAAB as the example below.

Example: Determination and Measurement of Impairment Loss at December 31, Year 1, Teca Company has specialized equipment with the following

Carrying amount. . . . . . . . . . . . . . . . . . . . . . . . . . . …. $50,000

Selling price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. …. 40,000

Costs of disposal . . . . . . . . . . . . . . . . . . . . . . . . . . .. ….. 1,000

Expected future cash flows . . . . . . . . . . . . . . . . . .. …. . 55,000

Present value of expected future cash flows. . . . . . …. 46,000

In applying IAS 36, the asset’s recoverable amount would be determined as follows:

Net selling price . . . . . . . . . . . . . . . . . ..  $40,000? 1,000 = $39,000

Value in use. . . . . . . . . . . . . . . . . . . . .. ……………………. $46,000

Recoverable amount (greater of the two) ………………….………………. $46,000

The determination and measurement of impairment loss would be:

Carrying amount. . . . . . . . . . . . . . . . . .. $50,000

Recoverable amount . . . . . . . . . . . . . . .. 46,000

Impairment loss . . . . . . . . . . . . . . . . . . . . . $ 4,000

Impairment Loss. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $4,000

Equipment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. …… . . . . . . . . . . . . $4,000

To recognize an impairment loss on equipment

Under U.S. GAAP, an impairment test would be carried out as follows:

Carrying value. . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000

Expected future cash flows (undiscounted). . . . . . 55,000

Because expected future cash flows exceed the asset’s carrying value, no impairment is deemed to exist. The asset would be reported on the December 31, Year 1, balance sheet at $50,000

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