Imparments

Assets are said to be impaired when their net carrying value, (acquisition cost – accumulated depreciation), is greater than the future undiscounted cash flow that these assets can provide and be disposed for.

Under U.S. GAAP impaired assets must be recognized once there is evidence of a lack of recoverability of the net carrying amount. Once impairment has been recognized it cannot be restored.

Analyst must know:
· Some foreign countries and the IASB allow companies to recognize increases in previously impaired assets.

Indicators:
· large decline in market value, physical change, use of the asset
· negative change in business climate
· large cut overruns
· forecast a large decline in LT profitability of the asset
· Changes in regulation and business climate
· Technology changes

Asset impairment occurs when there are:
· Recoverability test: (test of impariment)
· If the sum of undiscounted expected cash flows from asset for use plus disposal < value ="">write down net book value to fair market value {or PV of cash flows, if market value is not known}.

Measurement: carry value – fair market value

Rules of impairment:
· Based on evidence of irrecoverability.
· Write-down cannot be restored later in us even it recover later
· Write-down is reported above the line.
· Original cost is also written down.
· Write-down is not immediately tax deductible, and so creates deferred tax asset.