Subjective Exam Final For Intermediate Accounting

For example , plans to discontinue or restructure the operation to which an asset belongs or to dispose of an asset before the previously expected date are good examples of the indications of impairment

As per SFAS 144 , that has superseded SFAS 121 and effective from August 2001 , a long lived asset shall be tested for impairment whenever the under mentioned circumstances warrant or indicate that carrying value of such long lived asset is not recoverable

Decrease in market value of the assets

Significant change in the manner of use of such

asset or changes in its physical shape

Legal implications on the value of such assets whereby the value of such assets have reduced significantly warranting impairment

Accumulation of costs significantly than originally envisaged for acquisition or construction of the asset

When reviewed on basis of past performances , significant losses are anticipated on basis of cash inflows

When useful life of the assets is expected to be significantly lower than the one earlier anticipated

B . Evaluation of FASB 's recognition criteria of impairment

i ) FAS 121 (adopted by FAS 144 ) use undiscounted cash in flow as the basis for comparing the carrying value of assets in to calculate the impairment of the assets . Standard setters have debated whether to use a discounted or an undiscounted recognition trigger . Proponents of the discounted measure argue that because discounting takes into consideration the time value of money , it is more relevant to investors and other users of financial statements

But those in favor of undiscounted measure argue as under

That the undiscounted measure is practical alternative with a basic assumption that reported carrying value of assets should at a minimum is recoverable

Secondly , undiscounted method avoids recognition of impairment caused by temporary market fluctuations

Using the discounted basis of recognizing impairment losses would...