Impairment Issues and Accounting Codes

FASB ASC (360-10-35-21), a long-lived asset that undergoes a change can be tested for recoverability. A decrease in market price could trigger this event. An adverse change could trigger it, and so on. For the case described by Persellin et al. (2014), either of these two events could be used to test the land's recoverability. An impairment event has more than likely occurred.

According to 360-10-35-31, a "primary asset of an asset group cannot be land" -- which means that guidelines are going to be different for this process. Moreover, impairment guidelines for assets held for sale versus assets held for use will have to follow the dictate in 360-10 that stipulates that impairment charges must reverse if there is a change in the use of the asset. Thus, if the asset is being used or sold will make a difference.

Fair value can be determined by ASC 820, which states that "fair value is the price to sell an asset or transfer a liability and, therefore, represents an exit price, not an entry price." Thus, the $10 million offer may be used as an exit price and must not reflect the fair value unless it is the exit price in the principal market -- or most advantageous market. It is thus a market-based measurement.

Valuation methodologies should be used to assess fair value -- namely, the market approach, the income approach and the cost approach. Additionally, paragraphs 360-10-45-9 through 45-11 can be used as a guide in this matter if the asset is considered a long-lived asset classified as held for sale. Part II 4.

IN6 discusses measuring value in use and that the "price for bearing the uncertainty inherent in the asset" should be reflected in the calculation of an asset's value in use; IAS 36-11 provides that "the ability of an intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty before the asset is available for use than after." An impairment loss should be recognized based on the calculations that projected sale of the asset is to be 2.5 million dollars under either of the respective values attributed to the land.

5. No, an impairment should not be made because the sale has not closed and in real estate transactions, until the sale closes nothing is certain -- therefore adjusting the impairment loss at the end of 2015 would be premature. It is better to await the closure of the sale and adjust for that quarter. 6.

360-10-35-22 may be used for property, plant and equipment depreciation estimates and this while 350-30-35-1 through 35-5 may be used to determine the usefulness of the intangible asset, which, in this case is appropriate considering the need to determine future cash flows and associated impairment. Thus depreciation estimates should be considered in this case and if the owner is agreeable to this, one can use revised depreciation cash flow projections. 7. U.S.

GAAP does not allow reversals for long-term operating assets held for use (ASC 360-10-35-20). Compared to assets held for sale, there is no difference. 8. IFRS allows impairment charges to be reversed if there is a change in the recoverable amount, asset's use or economy. The asset's impairment can be reversed but the revaluation cannot be made greater than the carrying amount had no impairment been charged.

IAS 36 7 c notes that paragraphs 109-116 provide guidelines "for reversing an impairment loss recognized in prior periods for an asset or a cash-generating unit." 9. The impairment calculation would increase accordingly. That would put a $22 million difference between future cash flow and sale price allowing for the impairment mark down to be taken. This is achieved by deducting the sale cost from the future cash flow. 10. Yes, if a change has occurred, the asset impairment can be reversed.

The asset should not be given a value that is greater than the carry amount prior to impairment losses, which is the net carry post depreciation deduction. 11. If my senior does not support the recommendation for impairment, I would relent and submit to his decision, since he is my superior.

The chain of command is there for a reason and instead of trying to circumvent his decision, I would instead ask that he explain to me why he had reached that conclusion so that I could understand, when he found time to do so. That is the way a solid chain of command works, and it would also allow me to better understand his position and for me to close any gaps in my own knowledge. 12.

Stakeholders in this case are the owners of the property, potential buyers, shareholders in the corporation, the board of.