CPA Financial Accounting and Reporting (FAR) : Asset Impairment
Study concepts, example questions & explanations for CPA Financial Accounting and Reporting (FAR)
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Example Questions
Example Question #6 : Other Long Lived Assets
A company has a tangible manufacturing asset and is trying to determine whether the asset needs to be evaluated for impairment. Which of the following would not indicate a need to perform this test?
The cost of constructing the asset was significantly more than anticipated
The company has experienced an operational loss for the past 3 years
The asset is being depreciated over 12 years but the company now believes the asset will be sold long before that
The use of the asset changed significantly during the current year
The company has experienced an operational loss for the past 3 years
Operational losses do not indicate that the fair value of the asset is less than the asset's carrying value. The other choices indicate that the asset's fair value could be less than it's carrying value.
Example Question #7 : Other Long Lived Assets
Which of the following is correct, under US GAAP, regarding impairment losses?
Losses are reported before tax if the impairment loss relates to discontinued operations
Losses reduce the carrying value of an asset due to the book value of an asset falling below its fair value
Neither of the above
Both of the above
Neither of the above
Impairment losses on discontinued operations are presented after-tax; Impairment losses are recorded when the fair value of an asset falls below its carrying value, not the other way around.
Example Question #8 : Other Long Lived Assets
The Mallory Corp has a fixed asset with a carrying value of $100,000, expected future cash flows of $90,000, present value of expected future cash flows of $70,000, and a market value of $75,000. What amount of impairment loss should Mallory record for this asset?
$30,000
$25,000
$0
$10,000
$25,000
Because expected future cash flows of $90K are lower than the asset's carrying value of $100K, impairment should be recorded. The amount of impairment loss recorded will be equal to the carrying value of $100K - the asset's fair value of $75K.
Example Question #9 : Other Long Lived Assets
After an impairment loss is recognized, the adjusted carrying amount of the intangible asset shall be its new accounting basis. Which of the following statements about subsequent reversal of a previously recognized impairment loss is correct under US GAAP?
It is prohibited
It must be disclosed in the notes to the financial statements
It is required when the reversal is considered permanent
It is encouraged but not required
It is prohibited
Under US GAAP, subsequent reversal of intangible asset impairment losses is prohibited unless the intangible asset is held for sale.
Example Question #11 : Other Long Lived Assets
Of the following, which is a pair of value that are compared to determined the amount of a possible impairment loss on an intangible asset, with an indefinite life, other than goodwill?
Fair value, carrying value
Carrying value, book value
Fair value, present value
Future value, carrying value
Fair value, carrying value
An intangible asset with an indefinite life is tested for impairment by comparing the fair value of the intangible asset to its carrying amount.
Example Question #1 : Asset Impairment
Under US GAAP, long term fixed assets that are impaired can only have their carrying value reinstated if they are:
Neither
Held for disposal
Both
Held for use
Held for disposal
Only when these assets are held for disposal can they have their carrying values restored.
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