I read that sometimes a company’s assets may decrease in value because of regulation or technological advancements.
-
Is it required that the drop in value be sudden and unexpected?
-
Are there limitations to what kind of assets can be impaired? For example
* A car manufacturer is cash rich. It uses some of the cash to invest in Exxon stock in January 2014. This would be considered “investment property” as opposed to something for sale to customers, or for their own use. The Exxon stock declines over the next 18 months. Would the answer change if the stock drop happened in 3 weeks?
* Pixar has purchased some Apple computers for doing 3D animation. Normally, computers are used for 3 years. Apple releases a faster computer that can render graphics better. Pixar’s protocol is generally to buy the newest machine and dump the old ones in the trash. Would the computers be considered impaired assets?
*Darden Restaurants invests $2,000,000 in new commercial real estate for a Red Lobster in Detroit in the year 2000. In 2014, the commercial real estate has plummetted to $250,000 because crime has gone up, and the upper middle class customers have fled the area. Would that commercial real estate be an impaired asset? The restaurant could still gross income, but the chances of ever selling that site for 2M again is slim to none.