Unfortunately for Eagle Company they are about to enter into a very trying period with laws changing to affect the way they do business and possibly damage their entire company. It is necessary to investigate how these changes will be viewed under the different accounting standards for these divisions of its company. When we are using IFRS to examine an impairment of Eagle’s Italy building, one is recognized “if, and only if, the recoverable amount of the building is less than its carrying amount. The carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss.” (IAS 36-59). In order to see if this IFRS is present we must first determine the recoverable amount, which is the higher of a cash-generating unit’s fair value less costs to sell and its value in use (IAS 36-18). Therefore recoverable amount would take the highest of the $900,000 value in use and the $800,000 fair market value less costs to sell. Then IFRS can determine if there is impairment by seeing that the carrying amount of $1,100,000 is greater than the $900,000 value in use. Thus under IFRS an impairment loss of $200,000 has occurred. However, when determining if any impairment has occurred on Eagle’s Italy building under U.S. GAAP we would need to compare the carrying amount of the long-lived asset against its fair value. (ASC 360-10-35-17) Therefore we look at undiscounted future cash flows, which equal $1,150,000 and see that this exceeds the building’s carrying amount of $1,100,000. So the Italy building is not impaired under U.S. GAAP.
The other major part of Eagle’s business that we must investigate for Eagle’s future is the impairment of cash generating unit (CGU) in Serbia to do this we must look at the goodwill and determine if it has been impaired under IFRS and U.S. GAAP. To do so we must compare the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. If the recoverable amount of the unit...
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