A few days ago
jatin

• The necessity for impairment testing of Assets?

• The necessity for impairment testing of Assets?

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A few days ago
jmaat1

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Impairment is a condition that will occur when the carrying amount of an asset exceeds its fair value.

To recognize it 2 things must both occur.

1. the carrying amount is not recoverable

2. the carrying amount exceeds fair value (the market price)

Impairment loss = carrying amount – fair value

this becomes the new value as adjusted by the above formula. And this new cost basis can be used for depreciable assets to recalculate the depreciation.

It used to be used to allocate goodwill under GAAP’s SFAS 121. But the newest SFAS 144 (August 2001) eliminated this. You can’t use the test for goodwill, Intagible’s not being ammortized, servicing assets, and deferred tax assets (I think there may be a couple other small things too).

This is a necessity to get a more realistic picture of the value on the assets. You can report the impairment loss as part of the Income from continuing operations b4 taxes.

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