Impairment of Assets Essay
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
TRIGGERING EVENTS: …show more content…
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