What is Impairment of long-lived assets?
In short
A long-lived asset held and used is impaired when its carrying amount is not recoverable from its undiscounted future cash flows. The loss is then measured as the carrying amount less fair value.
Key takeaways
- Two steps: a recoverability test with undiscounted cash flows, then measurement against fair value.
- Impairment losses on assets held and used are never reversed under US Generally Accepted Accounting Principles (GAAP).
- Assets held for sale are measured at the lower of carrying amount and fair value less costs to sell, and aren't depreciated.
Example
Carrying amount $900,000, undiscounted cash flows $850,000, fair value $700,000: the asset fails recoverability and the loss is $200,000.
Where it's tested
FAR: Property, Plant & Equipment — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Under US GAAP, a long-lived asset held for use is tested for impairment. The carrying value is $500,000, undiscounted future net cash flows are $520,000, and fair value is $460,000. What impairment loss, if any, should be recognized?