Case 14 09 Essay

We are writing to you regarding the inquiry we received over the possible impairment of your cruise ship. Our response was formulated using our extensive knowledge of the U.S. Generally Accepted Accounting Principles and referring to ASC 360-10 over the testing of impairment. After preforming recoverability tests, we have concluded that your cruise ship is impaired, and an impairment loss of $1.6 million should be recorded on December 31, 2010. In the second scenario, the asset is recoverable because the expected future cash flows are greater than the carrying value; therefore, the cruise ship is not impaired. The rest of this memo will describe how we calculated the impairment on your cruise ship.

1) In the case, a significant change in the legal environment. We need to perform a recoverability test. According to ASC 360-10-35-21 “events or changes in circumstances indicate that the book value of the asset or asset group may not be recoverable. (c) A significant adverse in legal factors or business climate” The carrying amount of net assets is 1,400,000, more than its fair value, which is 1,300,000 (due to the revaluation of PP&E). There is impairment loss on total assets under GAAP. We first indicate if there is a loss on goodwill. ASC 360-35-26 states” Goodwill shall be included in an asset group to be tested for impairment under this Subtopic only if the asset group is or includes a reporting unit. Goodwill shall not be included in a lower-level asset group that includes only part of a reporting unit. Estimates of future cash flows used to test that lower-level asset group for recoverability

Before abandonment the asset should be depreciated so at the time of disposal the carrying value equals the salvage value, but not less than zero. Assets that are distributed to owners or exchanged for a similar productive asset must recognize an impairment loss if the carrying amount exceeds fair value at the time of disposal. Assets that are going to be disposed of by sale must be classified as such and the gain or loss it recognizes must be disclosed on the income statement or in the notes. For assets disposed of by sale, the amount of cash received is compared the asset's book value, which is calculated by subtracting accumulated depreciation from the cost of the asset. A gain is recorded if the proceeds of the sale are greater than book value. A loss is recorded if the proceeds of the sale are less than the book value (FASB, 2014).

O.T.T. Incorporated is a clothing manufacturer that creates and sells collegiate apparel. In year 20X1, O.T.T. Incorporated hired a group of college graduates to create an investment department for the company. After a year, six investments remain in the department’s portfolio. All investments are impaired as they have all decreased in value relative to each investment’s original price. According to The Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), “an investment is impaired if the fair value of the investment is less than its cost” (ASC 320-10-35-21). Auditors have asked the company to determine if any of the company’s investments are other-than-temporarily impaired as of December 31, 20X1 to ensure

Case 10-2 Ida’s Impairment Ida Inc. (Ida) is a manufacturing company with operations in the United States and Spain. As a U.S. subsidiary of a U.K. entity, Ida prepares its financial statements in accordance with (1) U.S. GAAP for reporting to its U.S.-based lender and (2) IFRSs in reporting to its parent. U.S. Operations In addition to other assets, Ida owns and operates a commercial building in the United States that is carried at its cost less any accumulated depreciation and any accumulated impairment losses. As of December 31, 2010, the building represents:  A cash-generating unit (CGU) under IFRSs.  A long-lived asset classified as held and used under U.S. GAAP. In December 2010, one of Ida’s competitors sold its commercial

An impairment loss is equal to the excess of the carrying amount over the fair value of the asset. Thus, once it is determined that carrying value will not be recovered, an impairment loss must be recognized”. For purposes of testing for recoverability and measuring an impairment loss, individual long-lived assets should be grouped with other assets forming the lowest level for which identifiable cash flows are largely independent of those of the entity's other assets. Note, though, that, if an impairment loss is recognized, it should be applied only to the long-lived assets in the group that are covered by FASB ASC 360-10 ; thus, other assets in the group are not affected but should, if necessary, be adjusted for impairment in accordance with other applicable GAAP. As defined in FASB ASC 350-10: “Goodwill should be part of an asset group to be tested for impairment only if the group is itself a “reporting unit” or includes such a unit”. Note that when we want to evaluate or compute the implied goodwill or test goodwill impairment, we should include the combined net assets of Plant 3 which includes property, plant and equipment. 8A-Impairment or Disposal of Long-Lived Assets (WG&L) provided relevant parts that: “impairment occurs when the carrying amount of asset is not recoverable and a write-off is needed”. The section also mentioned about various events and changes in circumstances might lead to an impairment

the valuation of non-marketable equity investments and the determination of other-than-temporary impairments, which impact gains (losses) on equity investments, net when we record impairments;

The Wilma has changed in use and condition therefore it needs to be reviewed for impairment. GAAP requires assets to be investigated for impairment, only when certain events or changes occur that may cause an asset to not be recoverable. (b) A significant change in the use of the asset and its physical condition. The Wilma originally manufactured high tech aquatic gear and was then converted into a commercial warehouse to lease out; thus changing its physical condition and the way it is being used. (f) Realization that the asset will be disposed of long before the end of its estimated life. Flintstone Holding expects that The

ASC 350-20-35-8A If the carrying amount of a reporting unit is zero or negative, the second step of the impairment test shall be performed to measure the amount of impairment loss, if any, when it is more likely than not that a goodwill impairment exists.

14. An investor adjusts the investment account for the amortization of any difference between cost and book value under the

I am working with our ABC client, and I wanted to let you know the issue regarding their Available-for-sale equity securities. For the second consecutive quarter, the client has been recording a decline in market value for several of their securities in “other comprehensive income”. The securities’ fair value are now below their cost. The issue with this situation is to determine if the securities are considered impaired, and if such impairment is considered “other than temporary”, in which case the company would have to account for the loss in a different way.

In order to correctly account for investments, entities must follow a two-step process under US GAAP. Step 1 requires an entity to determine whether the investment is impaired. According to ASC 320-10-35-21, “an investment is impaired if the fair value of the investment is less than its cost.” An entity shall test for impairment each reporting period. As of December 31, 20X1, each of CollegeGear’s six investments were impaired.

These assets are stated at cost less accumulated depreciation and impairment loss (if any) except

The purpose of this statement is that several items that affect net asset may not be apparent from a review of the statement of operations. For example, an addition to endowments under the deferral method of accounting would not appear in the statement of operations but would impact the ending net asset balance. The difference in the arrangement of this statement is that the main section denotes discrepancies in unrestricted net assets, temporarily restricted net assets and permanently restricted net assets.

The Allowance for Loan Losses (ALL) represents an estimate of losses that have been incurred on loans in the portfolio that are considered to be “impaired” as of the balance sheet date, based in part of review of individual loans and in party on high-level analytics of groups of loans sharing common risk characteristics (“0081_REP_Sacher_interior.indd-243_Sacher_Loan_Losses.pdf,” n.d.).