[Biff-1955-Tannen]

This says that only II. is needed for an impairment loss to be recognized. So in turn that’s saying that if you apply an impairment test of comparing the carrying amount with the un-discounted expected future cash flows, and determine that it is impaired. You should be able to record an impairment loss even if its carrying value exceeds its fair value, because apparently “the carrying amount of the long-lived asset is less than its fair value” is not needed for an impairment loss.

Am I the only one that finds this beyond absurd?

Which of the following conditions must exist in order for an impairment loss to be recognized?

I. The carrying amount of the long-lived asset is less than its fair value.

II. The carrying amount of the long-lived asset is not recoverable.

A.

I only

B.

II only

Incorrect C.

Both I and II

D.

Neither I nor II

FASB ASC 360-10-35-17 establishes a recoverability test to determine when an impairment loss is to be recognized. If the undiscounted sum of estimated future cash flows from an asset or asset group is less that the asset’s or asset group’s book value, an impairment loss may need to be recognized. The impairment loss is the difference between the book value of the asset(s) and its (their) fair value. Note that there is not an impairment loss if the fair value exceeds the carrying amount.

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Anonymous]

The carrying amount is usually less than the fair value. Think depreciation. When you buy an asset, you pay fair value for it and then you depreciated it. Its when the fair value is less than carrying amount, that it should to be written down to its fair value.

[Biff-1955-Tannen]

I realize that the carrying amount is usually less than the fair value. I'm not saying that that alone will determine if it's impaired, I'm just saying that it IS needed to have an impairment loss. For example, lets say that you have an asset with a carrying value of $10,000 and expected future cash flows of $8,000. With the recoverability test, there is an impairment. Now tell me what you will record as an impairment loss when the FMV of the asset is $9,000.
According to their question/answer you should be able to record an impairment loss because it apparently isn't necessary that the carrying value be less than the FMV. Do you see what I'm saying?

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Anonymous]

Yes. But if the carrying amount is already less that the FMV then there is no need to record any impairment. You're already reporting it a less than FMV. It would go against the conservatism principle. The answer states that there is no impairment loss if the FMV>CV. If the FMV was $9,000, I would record and impairment loss of $1,000 (CV-FMV).

Are you thinking that the CV being less than FMV creates a loss?

[Biff-1955-Tannen]

Good grief never mind I had this shit all backwards. I need a break from FAR

AUD 93 Jan 16
BEC 83 Feb 16
FAR 83 Apr 16
REG 84 May 16

99% Ninja MCQ only

[Jdn9201]

I just studied this today, but I think you are confusing the amounts that determine when the impairment test is triggered vs the amount of the impairment that you recognize. This may not be the best technical explanation, but it's how I made sense of it for myself. The trigger is when the un-discounted future cash flows is less than the carrying value. The reason is the lower future cash flows have impeded the entity's ability to fully recover the cost of their asset investment. From a practical standpoint, let's say you own that plant. Once you get to the point where that asset can't produce anything of value, you're going to dispose of it and probably take a loss for doing so. The amount of the loss is going to be the difference between CV and FMV, because FMV is what you'd receive for the asset if you sold it right now in the current market. I hope that helps.

BEC - 88 8/29/15
REG - 82 11/14/15
AUD - 83 1/8/16
FAR - 80 2/29/16

[Author]

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