Impairment of Assets Essay

1297 Words Oct 19th, 2012 6 Pages
FASB 144 Impairment of Assets

Assets held for use

Includes land, building, equipment, natural resources, and intangible assets

FASB 147 specifies that intangibles from the banking industry are covered by FASB 144 rules:

Long-term customer relationship assets such as Depositor-relationships intangible assets Borrower-relationships intangible assets Credit card holder Intangible assets

When should impairment be recognized?

Testing each asset each period would be too costly

Events or changes in circumstances indicate that its carrying amount may not be recoverable

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Carrying amount of asset (book value) is greater than undiscounted future cash flows related to use and disposal of asset

In other words, the carrying value is not recoverable

Note that an impairment can exist (that is, carrying value can be less than fair value) but it is not recognized as long as the future cash flows (undiscounted) are greater than the carrying value.

The asset is written down to fair value

The fair value becomes the new carrying value (book value) and depreciation is recorded over remaining useful life

Restoration of a previously recognized impairment loss is prohibited.

Determining fair value

FASB 144 describes a probability-weighted cash flow estimation approach to deal with situations in which

alternative courses of action to recover the carrying amount of a long-lived asset are under consideration, or

a range is estimated for the amount of possible future cash flows

Assets to be Sold vs. Abandoned

New rules in FASB 144 distinguish between assets to be sold and those to be abandoned, exchanged or spun-off

Problems with FASB 121

Under the old

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