DTL concept

Harding Corp. has a permanently impaired asset. The difference between its carrying value and the present value of its expected cash flows should be written down immediately and: A) reported as a non-operating loss before computation of net income. B) reported as a separately disclosed loss net of tax effect, if any, due to a change in accounting method. C) directly charged against retained earnings. D) reported as an operating loss.

A or D?

A) reported as a non-operating loss before computation of net income.

Arh … Asset impairment should be unusual or infrequent item --> operating & pretax cannot be A & B or C anyone to confirm/infirm me ?

D) because unusual or in frequent items appear before ‘the line’


can we get the answer on this one Pepp?

Lying in bed…too lazy to get up but I found this link. It looks like asset impairment is an operating loss. (e.g. AMD took out the impairment effects from operating income and reported this as non-GAAP operating income) http://biz.yahoo.com/e/080417/amd8-k.html

Do we have any tax savings from impairment? I remember reading some where that Impairments charges are tax exempted. So my next question is; if we report impairment charges above the line, it is affecting the taxes and I am just wondering how that is treated. ie how this tax effect is nullified.

Asset impairment is a non-operating loss, reported above the line as part of continuous operations, just like gains or losses from sale of long-lived assets, or disposal of a portion of a business component: unusual or infrequent, non-operating, above the line. Asset impairment is not recognized for tax purposes until the asset is disposed of. Until that time, it creates a DTA. I’d say A.

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