Case 10-2 Eagle Impairment Case
Under IFRS’ International Account Standard No.36^15 an asset must be assessed for indicators of impairment at the end of each reporting period. The information provided for the commercial building in Italy does not say whether there are is an event or change in circumstances that indicate that book value of the asset may not be recoverable. Since there is no indicator mentioned, one possibility would be that no investigation of impairment take place and there is no impairment loss. It is more likely however that there are indicators that have occurred, they just aren’t identifiable from the information given. If there were indicators and impairment was tested there is no recoverability test under IFRS. An impairment loss is recognized when an asset’s book value exceeds the higher of the asset’s value-in-use or fair value less costs to sell. For Italy’s commercial building the book value is $1,100,000, the value-in-use is $900,000, and the fair value less costs to sell is $800,000. Since the commercial building’s book value is higher than the value-in-use an impairment would be recognized as the difference between book value and the recoverable amount (value-in-use in this situation). So an impairment loss would be recognized for $200,000($1,100,000- $900,000). Question #2
Under U.S. GAAP, assets are tested for impairment when events or changes in circumstances indicate that book value may not be recoverable. For the building in Italy, again there is no information provided that says that there have been indicators that book value may not be recoverable. So a possible outcome in this situation could be that no investigation even take place and no impairment be recognized. If there are indicators which aren’t presented in the text, an impairment loss is required only when the undiscounted sum of estimated future cash flow from an asset is less than the asset’s book value. For the commercial building in Italy owned by...
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