This website uses cookies to ensure you have the best experience. Learn more

Impairment Essay

1727 words - 7 pages

Dear Mr. Gabriel,

In response to your inquiry regarding potential adjustments to the carrying value of your corporation’s tangible assets for possible impairments in value and also for possible impairment of value of the Goodwill booked on the corporation’s Balance Sheet, I have researched and concluded the following information and proper disclosures for XYZ Corporation.

Tangible Assets
Let’s begin with the tangible assets of the corporation. Over the useful life of the asset, it is necessary to periodically test for impairment. Impairment exists when the carrying value of a long-lived asset exceeds the fair value of the asset and is not recoverable. Various events and changes in ...view middle of the document...

It is necessary to recognize and disclose an impairment loss to give a correct value to the assets on the Balance Sheet. If the value is understated or overstated, it could be misleading to investors, Board Members, and the general public. To give an illustration of what is explained above, I have given examples of impairments.

A piping company had an inventory of pipe with a book value of $450,000, which the fair value of the market had decreased. The expected future net cash flows and eventual disposal from the inventory is $480,000. Since the expected future net cash flows and disposal exceeds the book value (carrying value), there is no impairment of the pipe and a loss is not recognized for the company.

The same piping company the following year had an inventory book value of $800,000. The company performed another test for impairment due to another decrease in fair value of the market. The expected future net cash flows were $620,000 from the inventory. Therefore, the recoverability test indicates that the company needs to recognize impairment since the expected future net cash flows is less than the book value. The fair value of the inventory of pipe was valued at $700,000, which means the company should recognize an impairment loss of $100,000. The loss is calculated by subtracting the fair value from the book or carrying value (800,000-700,000). To record the loss, the entry needs to be as follows:

Loss on Impairment $100,000
Inventory $100,000

Since there was a $100,000 impairment loss, it needs to be included on the Income Statement of the company. It should be included in the continuing operations sections under “Other expense and losses.”

Goodwill Impairment
To address the goodwill of the corporation, first, goodwill is the excess value of cost of the purchase over the fair value of the identifiable net assets purchased. For example, if company Z bought a company R for $100,000, in which company R’s net assets were valued at $90,000. The goodwill that should be recorded on company Z’s Balance Sheet is $10,000. Goodwill should be tested annually for impairment.

As with tangibles, goodwill must be tested periodically for impairment and is similar in nature to that of tangible assets. It is a two-step process when applying the impairment rule to goodwill. First, you must compare the fair value of the reporting unit to the carrying value, which includes goodwill. If the fair value is greater than the carrying value, goodwill is not impaired. If the fair value is the less the carrying value, the company must recognize an impairment and perform the second step. The company should determine the value of the fair value of the goodwill and compare it to the carrying amount.

Lets take for example Company Z from above. The company determined $10,000 of goodwill from the purchase of Company R. When purchased, the fair value of the assets was $90,000 and was purchased by...

Other Papers Like Impairment

Impairment of Goodwill Essay

1314 words - 6 pages The Impairment of Goodwill As regulated by U.S. GAAP & IFRS By Russell Wickham Franklin University Dr. Thomas Hrubec The Impairment of Goodwill As Regulated by U.S. GAAP & IFRS Introduction Goodwill is an intangible asset that usually arises from the acquisition of a business. When the purchase price is determined, the difference between the purchase price and the fair market value of the net assets, i.e. fair market

Goodwill Impairment Case Essay

520 words - 3 pages Jacquelyn Keville William Brown 797AT Case Study April 9, 2015 1. No, management did not have to perform an interim goodwill step 1 impairment test as of September 30, 2012. In December of 2011 Galaxy used an external valuation firm to perform its goodwill impairment analysis. This showed that each reporting unit passed step 1 of the impairment test because the fair value of their equity was well above the book value of their equity. In Q1

Impairment Quiz Questions

711 words - 3 pages AACT2006 CORPORATE ACCOUNTING IMPAIRMENT QUIZ QUESTIONS 1. In allocating an impairment loss for a cash generating unit which of the following assets would not be given a portion of the loss – land; machinery; inventory; manufacturing licence; receivables? Why? (1 Mark) 2. How is an impairment test undertaken? (2 Marks) 3. Peppermint Ltd has determined that its orchard division has suffered an impairment loss of $42 000 for the year

Hearing and Visual Impairment

1388 words - 6 pages Running head: Hearing and Visual Hearing and Visual Impairment Bonnie J. Hatch Grand Canyon University SPE 526 May 19, 2010 Abstract The abstract of this essay will include information on hearing and visual impairments. It will explain the legal definition of both, the impact that hearing and visual impairment have on a person’s development and education achievement, how humans hear and see and the degrees, types and causes of each

Symptom Severity and Functional Impairment

1594 words - 7 pages Symptom Severity and Functional Impairment CPSY 6341 – Psychological Assessment Walden University Symptom Severity and Functional Impairment The treatment of individuals with suspected psychological issues can be a very complicated process. In trying to design the best and most effective treatment plan, a clinician or psychologist must first employ the use of certain tests, which are aimed at examining and assessing the mental status

Vision Impairment in Older Adults

1530 words - 7 pages easily lead to secondary damage to the cord and more severe impairment. Compression fractures of the spine happen when great force is applied either on top of the skull or to the feet (falling on the head or jumping from the height) and result in the forceful damage to one or more vertebrae. Multiple vertebral pieces may pinch, tear or lacerate nerve fibers, or damage blood vessels. Bleeding is dangerous not only because of the extra pressure on

Financial Instruments – Other-Than-Temporary Impairment

769 words - 4 pages Joseph Won ACCT 351 Research Case 2 February 11, 2015 Financial Instruments – Other-Than-Temporary Impairment 1. For the following investments, determine if OTT should record an other-than-temporary impairment as of December 31, 20X1, and if so, for what amount: • Happy New Year & Co. * Since the fair value of investment is less than its cost, the Company should proceed to step 2 for identifying and accounting

Goodwill Impairment at Jackson Enterprises Case

1172 words - 5 pages Xinyun Zhang ACCT325 Individual Case Goodwill Impairment at Jackson Enterprises Case 1. When is a company required to perform the two-step test for goodwill impairment? Explain in your own words and provide citation from the ASC. Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative

Case 04-4: Three Little Pigs, Inc.– Inventory Impairment

1301 words - 6 pages as fixed assets? 2. If live hogs should be classified as inventory, on what basis should the inventory be evaluated for impairment under the lower of cost or market method – total inventory, inventory category, end product category, or individual hog level? 3. If an impairment of inventory exists, should the impairment be recognized in an interim period? ANALYSIS ASC 905-330-25-3 states, “Animals with short productive lives…may be classified

Impairment and Disability Act

617 words - 3 pages Being that an intentional tort means that someone intended on committing harm in some way, it could easily be seen in the health field in my opinion. WHile there are ways to cover up many times it does come down to a patient knowing that one intended harm. It could be seen as an orderly who roughly handles a patient or even a nurse knowing that she intended to overdose a patient. Many times it could easily come in the form of a doctor refusing to

Describe the Applicable Legal Policies and Procedures to Refer a Student with a Perceived Impairment for Evaluation

5728 words - 23 pages Overview The Individuals with Disabilities Education Act (IDEA) is a United States law that was created to support the learning needs of eligible children with disabilities. This law guarantees that disabled children are provided a free appropriate public education. Before IDEA was passed, most children with disabilities were placed in restrictive state institutions that accommodated persons with mental illness or retardation. These disabled

Related Essays

Impairment Essay

693 words - 3 pages AACT2006 CORPORATE ACCOUNTING IMPAIRMENT QUIZ QUESTIONS 1. In allocating an impairment loss for a cash generating unit which of the following assets would not be given a portion of the loss – land; machinery; inventory; manufacturing licence; receivables? Why? (1 Mark) 2. How is an impairment test undertaken? (2 Marks) 3. Peppermint Ltd has determined that its orchard division has suffered an impairment loss of $42 000 for the

Impairment Test Essay

969 words - 4 pages Case 10-2 Ida’s 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

Impairment Of Assets Essay

968 words - 4 pages – IAS 36 Impairment of Assets A. The purpose of this project is to provide an understanding on the process of impairment of assets and determining how it affects the financial statement and its users. B. The main purpose of standard IAS 36 is to ensure that the assets reported of Balance Sheet are recorded at no more than its recoverable amount. An asset or cash-generating unit will be considered impaired if the carrying amount is

Determine Asset Impairment Essay

3628 words - 15 pages GUIDELINES TO DETERMINE ASSET IMPAIRMENT AND REPORTING OF INSURANCE RECOVERIES ASSET IMPAIRMENT STEP 1: Identify “Potential” Impairments to Capital Assets The first step in the process is to identify “potential” impairments to capital assets. Identifying “potential” impairments to capital assets may not necessarily lead to recording an impairment loss. Refer to Step 1 of Exhibit 1 for a detailed decision tree. How is asset impairment defined