What is impairment testing of intangible assets?
Indefinite-Lived Intangible Assets The impairment test compares the carrying amount to the recoverable amount (defined above). If the carrying amount exceeds the recoverable amount, then an impairment loss is recorded. The recoverable amount is determined for an individual asset.
How often should impairment test of an intangible asset with indefinite useful life be performed?
Intangible assets with an indefinite useful life are required to be tested annually for impairment irrespective of whether there is an indication that they may be impaired (see section 6).
What assets are tested for impairment?
Asset accounts that are likely to become impaired are the company’s accounts receivable, goodwill, and fixed assets. Long-term assets, such as intangibles and fixed assets, are particularly at risk of impairment because the carrying value has a longer span of time to become impaired.
What is impairment of intangible?
Impairment occurs when an intangible asset is deemed less valuable than is stated on the balance sheet after amortization.
Which of the following is the impairment test for indefinite life intangibles?
fair value test
The impairment loss for an indefinite-life intangible asset is determined by the fair value test, which indicates the amount by which the carrying value of the asset exceeds the fair value of the asset.
What is indefinite life intangible assets?
The useful life of an intangible asset should be considered indefinite if no legal, regulatory, contractual, competitive, economic, or other factors limit its useful life to the reporting entity.
When should an impairment test be performed?
The annual impairment test for an asset may be performed anytime during the annual period provided the test is performed at the same time every year. Assets that are subject to annual testing may be tested at different dates provided the date is consistent whenever the test is undertaken.
How do you calculate impairment of intangible assets?
How to Calculate Impairment Loss
- Step 1: Calculate the asset’s depreciation.
- Step 2: Calculate the asset’s carrying cost.
- Step 3: Calculate the asset’s recoverable value/salvageable value.
- Step 4: Calculate the impairment loss.
How do you test for impairment of long lived assets?
The first step in the impairment test is to determine whether the long-lived assets are recoverable, determined by comparing the net carrying value of the asset group to the entity-specific, undiscounted net cash flows to be generated from the use and eventual disposition of that asset group.
How are intangible assets with an indefinite life treated?
An intangible asset with an indefinite useful life is not amortised, but is tested annually for impairment. When an intangible asset is disposed of, the gain or loss on disposal is included in profit or loss.
What is an impairment test and why is it considered necessary?
Impairment testing is the process of reviewing the values of assets shown in the balance sheet of a company (known as the ‘carrying amount’) to determine whether those values continue to be supportable or should be reduced.
How is impairment test done?
To check an asset for impairment, the total profit, cash flow, or other benefit expected to be generated by the asset is compared with its current book value. If it is determined that the book value of the asset is greater than the future cash flow or benefit of the asset, an impairment is recorded.
How do you perform an impairment test?
How to test the impairment?
- Perform the recoverability test: It involves evaluating whether the future value of asset undiscounted cash flows is less than the book value of the asset.
- Measurement of impairment loss: It is calculated by finding the difference between book value and market value of the asset.
When should assets be tested for impairment?
Assets should be tested for impairment regularly to prevent overstatement on the balance sheet. Impairment exists when an asset’s fair value is less than its carrying value on the balance sheet. If impairment is confirmed as a result of testing, an impairment loss should be recorded.
Does intangible assets have impairment?
An indefinite-lived intangible asset is considered to be impaired when the asset’s carrying amount is greater than its fair value. There are various approaches to determine whether an impairment should be recognized and, if so, how to measure and record such impairment in the financial statements.
Which assets should be tested for impairment first?
Order of Impairment Testing Prior to testing goodwill for impairment, companies should first test other assets (e.g., accounts receivable, inventory) and indefinite-lived intangible assets, then long-lived assets (including definite-lived intangible assets), and finally, goodwill.
What are three types of impairments?
Impairments can be permanent, temporary, or situational. They can also be invisible.
How do you test for impairment of indefinite-lived intangible assets?
When testing for impairment of indefinite-lived intangible assets, an entity can perform an initial qualitative assessment. This assessment determines whether it’s more likely than not that the asset is impaired. If the intangible asset is impaired after the initial qualitative assessment, calculate the asset’s fair value.
Does FASB simplify impairment testing of indefinite-lived intangible assets?
FINANCIAL REPORTING FASB simplifies impairment testing of indefinite-lived intangible assets BY KEN TYSIAC Related TOPICS Accounting & Reporting FASB Financial Accounting & Reporting The guidance for testing the impairment of intangible assets such as indefinite-lived trademarks, licenses and distribution rights has been simplified by FASB.
What is the quantitative impairment test?
The quantitative impairment test compares the fair value of an indefinite-lived intangible asset with the asset’s carrying amount. If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss should be recognized in an amount equal to the difference in accordance with ASC 350-30-35-19.
What is the fair value of an intangible asset impairment?
If the fair value of the indefinite-lived intangible asset is less than the carrying amount, an impairment loss should be recognized in an amount equal to the difference in accordance with ASC 350-30-35-19.