[canfinishthis2013]

What does undiscounted cash flow really mean?

I’m reviewing the FAR chapter 2 about the impairment for intangible assets with finite lives, what is undiscounted cash flow mean?

Can someone help me soon? I really appreciated.

FAR PASSED Feb 28, 2013
AUD Oct 27,2013
REG Jan 7,2014
BEC Nov 15,2013

[foreseeableCPA]

Undiscounted does not take into consideration the value of time. So if you receive 100 dollars 5 years from now, undiscounted today would be 100 dollars. But since inflation/other factors occurs, that 100 dollars 5 years from now is not 100 dollars today. It will be a little less than 100.

CPA - Class of 2013
CIA - Class of 2016

[canfinishthis2013]

foreseeableCPA, thanks a lot.

FAR PASSED Feb 28, 2013
AUD Oct 27,2013
REG Jan 7,2014
BEC Nov 15,2013

[canfinishthis2013]

@foreseeableCPA, about the undiscounted cash flows expected from the use of the asset, is this the same as fair market value of the asset?

FAR PASSED Feb 28, 2013
AUD Oct 27,2013
REG Jan 7,2014
BEC Nov 15,2013

[foreseeableCPA]

First you compare the undiscounted future net cash flows to the net carrying value. If this number is negative (asset impaired), the next step is to compare the fair value to the net carrying value. That will be the impairment loss for assets held for us. If its held for disposal, you would take that impairment loss and add the cost of disposal. To answer your question about the undiscounted future net cash flows being the same as the FV, I don't think so. Hope this helps!!

CPA - Class of 2013
CIA - Class of 2016

[canfinishthis2013]

@foreseeableCPA, what is the undiscounted future net cash flows expected to result from the use of the asset and its eventual disposition? is this the cost from use the asset? can you make an example of the undiscounted future net cash flows?

Thanks a lot, I'm still confused.

FAR PASSED Feb 28, 2013
AUD Oct 27,2013
REG Jan 7,2014
BEC Nov 15,2013

[foreseeableCPA]

I believe it's the amount of cash that the asset is expected to generate in the coming years. So if the asset is suppose to generate 50K YEAR 1, 60K YEAR 2 & 70K YEAR 3 — the total undiscounted cash flow is 180K. Now remember that undiscounted means that inflation/other factors are not imputed. In other words, if a company were to invest money today, what will be the total amount of money the company would receive in a certain number of years.

CPA - Class of 2013
CIA - Class of 2016

[canfinishthis2013]

@foreseeableCPA, just so , to put it into simple words, what's the function of un-discounted future net cash flows?

FAR PASSED Feb 28, 2013
AUD Oct 27,2013
REG Jan 7,2014
BEC Nov 15,2013

[foreseeableCPA]

I'm sure its to see if the asset will even generate enough money to cover the carrying value. To see if the asset is even worth anything to the business or if its impaired. I believe its undiscounted because for simplicity, as well as it being difficult to determine what the discount rate should be. I hope someone else can chime in here and maybe give you a better explanation. Never really thought about the subject too much, just wanted to make sure I can do the calculation lol.

CPA - Class of 2013
CIA - Class of 2016

[canfinishthis2013]

@foreseeableCPA,Okay, thanks a lot. I tend to think that i'm getting there now.

FAR PASSED Feb 28, 2013
AUD Oct 27,2013
REG Jan 7,2014
BEC Nov 15,2013

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