[Nami]

Hi,

If assets (machine) will be revalued zero. Per advice, it should be classified as impairment. What should be the proper journal entries for asset impairments. In this case, if the assets are revalued to zero, should it be the same with assets write off / retirement ?

Dr. Impairment expense
Dr. Accum. Depr.
Cr. Machine

I’m confused on how to differentiate the accounting treatment between write off / retirement / impairment ? and If anyone has experienced revalue assets to zero ?

Thank you..

Illinois CPA 02/15

[Nami]

Nami

Illinois CPA 02/15

[alloverit]

There's some semantics here. The biggest difference is between a retirement and an impairment.

With a retirement, the asset is off the books completely…at least it's SUPPOSED to be. A loss can occur.

With an impairment, the asset stays on the books. The book value is credited and accumulated depreciation is debited. A loss ALWAYS occurs.

A write off is a term better suited for assets like accounts receivable rather than PP&E…but again, there's going to be some overlap of these terms in the real world.

A real asset is impaired. A financial asset is written off.

[Nami]

Thank you @alloverit

So, if Machine = 100, Accum.= 80, NBV = 20

Sorry for my confusion, For assets impairment (revalue to zero) when the “book value is credited” what type account it should be ? Should it be this entries?

Dr. Impairment loss 20
Dr. Accum.80

Cr. Machine 100

If so, when revalue to zero with impairment treatment, there will be no assets stay on the book ?

Illinois CPA 02/15

[Nami]

in case the equity company (50% JV) with Local GAAP treat as asset impairment, should the parent company (U.S.GAAP) adjust with same accounting treatment, we expect to see different numbers in impairment loss since depreciation was calculated under different method (double declining-Local vs. Straight line-U.S).

Thank you!!

Illinois CPA 02/15

[alloverit]

The journal entry is correct!

However, the asset will remain on the books with a book value of ZERO (for your example).

I don't want to risk confusing you by getting into all of the tax related issues involving deferred assets, etc. as I think that's beyond the scope of your question.

But again, without getting too deep into the semantics involved, an impairment to ZERO would likely lead to ultimately retiring the asset…just maybe not immediately.

[Nami]

@alloverit Thanks a lot!!

I got some painful trying to understanding deferred tax related to Local GAAP vs. U.S.GAAP adjustment last year since depreciation method are difference.

If it is not too much asking, Deferred tax explanation and other related impacts would also be helpful. I'm trying to understand the whole picture (both balance sheet, PL) when this impairment event will definitely occur this year.

U.S.book impairment loss can be higher/lower than Local book (Local GAAP). Is this correct ?

Deferred tax may occur from different Accum.Depre. that we will reverse between Local book vs. U.S book.

If this is the equity company (Local GAAP) impairment event, the parent company (U.S.GAAP) should treat as impairment as well ?

Sorry for a lot of questions.

Thank you!!

Illinois CPA 02/15

[Troys22]

The journal entry is not correct. If you credit the asset you are removing it from the books. Given your example:

Asset 100
AD 80
NBV 20

I would do this:

Dr. Impairment loss
Cr. AD

That way the asset remains on the books, but is fully depreciated. Instead of recognizing expense for the full amount you are recognizing the loss.

[alloverit]

@Troy

In order to recognize the loss, the asset has to be revalued on the balance sheet. Your entry doesn't do that. While it does correctly affect AD, the entry you propose, on its own, does not affect the depreciation base of the impaired asset.

In truth,the correct JE is

DR AccDepr 80
DR Imp loss exp 20
CR Asset 80
CR AccImpLoss 20

[Troys22]

Hmm.. I'll have to brush up on that and review this topic. I agree that the new BV of the asset would equal the FV of 0.

[Author]

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