Help with Goodwill Impairment for GAAP/IFRS

USA Discussion in 'Exams and Studying' started by Dejay11chris, May 8, 2018.

  1. Dejay11chris

    Dejay11chris

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    I have an example problem with the correct answers, but I cannot for the life of me figure out how to calculate them myself. Here's the information:

    Holzer Company purchased equipment at the beginning of 2010 for $200,000. The equipment has a service life of 10 years and no residual value and uses straight line depreciation. At the end of 2012 a review of both external and internal factors indicated a potential decline in the value of that equipment. The following information was developed:

    Expected future cash flow: $155,000
    Present Value of expected future cash flows: $110,000
    Fair Value of asset (net selling price): $126,000

    For 2012, Under both GAAP & IFRS determine the amount of impairment loss, if any.


    The correct answers are $34,000 for GAAP and $50,000 for IFRS, can any one give me a step-by-step bc I thought I knew how to do this, but I can't get these answers.

    EDIT: Okay, those answers may not be the correct ones, they're what someone else thinks they might be, so any help working this would be nice! Also, ignore "Goodwill" in the title, this is just asset impairment. We do goodwill in the same chapter so I got ahead of myself.
     
    Last edited: May 8, 2018
    Dejay11chris, May 8, 2018
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  2. Dejay11chris

    bklynboy VIP Member

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    For GAAP, at the end of 2012 you would have a BV of $160,000 (200,000 cost less 2 years of depreciation expense or 40,000). An impairment exists if the BV is higher than the expected cash flows (which its is here). You then compare BV against Fair Value and record impairment for difference. Your Fair Value is $126,000 so you need to write down the asset by $34,000 (160-126). Impairments are taken to get the asset back to its recoverable value.

    I thought the loss is the same under IFRS but not really sure as I dont use IFRS much. Seems the 50K you were told is the difference between BV (160) and PV (110) - not sure this is right though as I always thought its the same for GAAP and IFRS but could be wrong on that.

    Check this link for summary of how it works https://www.iasplus.com/en-us/standards/ifrs-usgaap/impairment-of-assets
     
    bklynboy, May 8, 2018
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  3. Dejay11chris

    Fidget VIP Member

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    The impairment write down would be the same under IFRS. It looks like the original answer has taken recoverable amount to be the lower of fair value & value in use under IFRS instead of the higher of the two.
     
    Fidget, May 8, 2018
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