Can anyone give a simple and clear explainaintion for the 3 values? Also, how does impairment comes into play? Or, will appreciate if there is any link given. Thanks.
AFAIK Book Value=Carrying Value. You bought assets at 100K 5 years ago, depreciated sl for 10 years. Now Book Value = 100K - 50K = 50K That is the Carrying value on the books. Now if you tried to sell that in the market - and you say got 60K for it, the 60K is the Fair Value of that equipment. If the FairValue was only say 40K - you get into a situation of deciding whether that loss of 10K is a temporary phenomenon, or if it is deemed to be permanent. If the loss is deemed permanent, and irrecoverable, you would take an impairment loss - which directly hits the income statement – in this period.
Interesting, I don’t remember this… can impairments be amortized over the remaining useful life? Or do people just amortize them manually by successively impairing them? I hated FSA with a passion (not the framework, just the details).
Impairments are not amortized as far as I know. It is an immediate Loss - that hits the income statement.
cpk123 Wrote: ------------------------------------------------------- > AFAIK > Book Value=Carrying Value. > > You bought assets at 100K 5 years ago, depreciated > sl for 10 years. > Now Book Value = 100K - 50K = 50K > > That is the Carrying value on the books. > > Now if you tried to sell that in the market - and > you say got 60K for it, the 60K is the Fair Value > of that equipment. > > If the FairValue was only say 40K - you get into a > situation of deciding whether that loss of 10K is > a temporary phenomenon, or if it is deemed to be > permanent. If the loss is deemed permanent, and > irrecoverable, you would take an impairment loss - > which directly hits the income statement – in > this period. Hi CP For the 1st scenario where the fair value is 60K, what would be the accounting for it? Or due to prudence concept, it will not be recorded? And how will the scenario change when the asset is current asset like securities? Is there impairment for securities? Thanks.
rev brings up a good point… would impairmeny have an effect on remaing depreciation… would cpk know? I don’t know how relavant this is for the eaxam though
If you sell something for less than you held it on your books, I believe you just take a hit on NI and don’t take an impairment charge - just a loss on the sale of equipment. Pretty sure impairment is only when the undiscounted future cashflows are less than the book value… Also, if you’ve sold the item there is no question whether the difference is temporary or permanent because you sold it. What happens to the price of the item after that is irrelevant because its no longer on your books. You lock in a loss. BUT maybe a better question would be: Say you bought 2 identical assets at 100K each 5 years ago depreciated straight line where life = 10 years Now Book Value = 100K - 50K = 50K each If you sell one of them for 40k, what happens to your financial statements and the carrying value of the second asset… Not sure about that… anyone?