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Eagle Company Essay

1734 words - 7 pages

To: Eagle Company (Eagle)
Subject: Eagle in Italy and Eagle in Serbia Impairments
Date: May 7th 2014

1. For Eagle in Italy, is the building impaired under IFRS as of Dec. 31, 2013, and if so what is the amount of the impairment?

After reviewing the given facts provided by Eagle in Italy, we have determined that there is an impairment on their building under IFRS for the amount of $200,000. We have determined this through the use of IAS-36 as well as the calculations given below:
IAS 36-6 An impairment loss is the amount by which the carrying amount of the asset or a cash-generating unit exceeds its recoverable amount.
The recoverable amount of an asset or a cash-generating ...view middle of the document...

An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value.

Book Value = Carrying Amount = $1,100,000
Undiscounted sum of future cash flows = $1,150,000
The undiscounted sum of future cash flows is greater than the carrying value on the building. Therefore, under U.S. GAAP, we would NOT recognize an impairment loss.

3.1 Is there an impairment loss on goodwill? If so, determine the amount of the impairment loss under IFRS and U.S. GAAP as of Dec. 31, 2013.

Impairment under IFRS:

After reviewing the given facts provided by Eagle in Italy, we have determined that there is an impairment on goodwill under IFRS for the amount of $350,000. We have determined this through the use of IAS-36 as well as the calculations given below:
IAS 36-90 If the recoverable amount of the unit exceeds the carrying amount of the unit, the unit and the goodwill allocated to that unit shall be regarded as not impaired. If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity shall recognize the impairment loss in accordance with paragraph 104.
IAS 36-104 An impairment loss shall be recognized for a cash-generating unit if, and only if, the recoverable amount of the unit is less than the carrying amount of the unit. The impaired loss shall be allocated to reduce the carrying amount of the asset of the unit in the following order:
a) first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit; and
b) then, to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit.

Carrying Value = $1,400,000
Recoverable Amount = $1,050,000
$1,400,000 > $1,050,000
Because the carrying value is greater than the recoverable value, we must recognize an impairment loss of the difference between the carrying amount and the recoverable amount.
$1,400,000 – $1,050,000 = $350,000 Impairment Loss

Impairment under U.S. GAAP:

After reviewing the given facts provided by Eagle in Italy, we have determined that there is an impairment on goodwill under U.S. GAAP for the amount of $250,000. We have determined this through the use of ASC Codification as well as the calculations given below:
ASC 350-20-35-4 The first step of the goodwill impairment test…compares the fair value of a reporting unit with its carrying amount, including goodwill.
ASC 350-20-35-6 If the carrying amount of a reporting unit is greater than zero and its fair value exceeds its carrying amount, goodwill of the reporting unit is considered not impaired; thus, the second step of the impairment test is unnecessary.
ASC 350-20-35-8A If the carrying amount of a reporting unit is zero or negative, the second step of the impairment test shall be performed to measure the amount of impairment loss, if any, when it is more likely than not that a goodwill impairment exists.

Fair Value of Eagle Serbia - Book Value of...

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