Case 10-02: Ida’s Impairment
In April 2011, the FASB issued an exposure draft on testing goodwill for impairment. Under the proposal, entities would have the option of performing a qualitative assessment before calculating the fair value of the reporting unit (i.e., step 1 of the goodwill impairment test). If entities determine, on the basis of qualitative factors, that the fair value of the reporting unit is more likely than not greater than the carrying amount, a quantitative calculation would not be needed. The proposal would not change how goodwill is calculated or assigned to reporting units, nor would it revise the requirement to test goodwill annually for impairment. In addition, the proposed guidance does not amend the requirement to test goodwill for impairment between annual tests if events or circumstances warrant; however, it does revise the examples of events and circumstances that an entity should consider. As it relates to this case, Ida would have the option of considering certain qualitative factors to determine whether it was more likely than not that the fair value of the reporting unit was less than its carrying amount. This assessment would be based on all facts and circumstances; however, the change in legislation and expected effect on Ida’s production may indicate that (1) it is more likely than not that the fair value of the reporting unit is less than the carrying amount and (2) Ida should perform step 1 of the goodwill impairment analysis
10-2 Idas Case Impairment Ida Inc. (Ida) is a manufacturing company with operations in the United States and Spain. As a U.S. subsidiary of a U.K. entity, Ida prepares its financial statements in accordance with (1) U.S. GAAP for reporting to its U.S.-based lender and (2) IFRSs in reporting to its parent. U.S. Operations In addition to other assets, Ida owns and operates a commercial building in the United States that is carried at its cost less any accumulated depreciation and any accumulated...
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