A2 Auto Corporation

1445 Words Mar 15th, 2013 6 Pages
Facts:
A2 Auto Corporation is one of the world’s largest manufacturers and distributors of automobiles and automobile ancillary parts. In its Form 10-K, filed with the SEC, the following information was disclosed.
First, on the basis of assumptions underlying the acceleration of the Company’s strategy refocus, management projects a decline in the net cash flows for the A2 Americas segment. As a result, in the third quarter of 2010, management has tested the long-lived assets of this segment for recoverability. They recorded a pretax impairment charge of $1.76 billion in cost of sales.
Secondly, during the third quarter of 2010, management also reviewed their business plan for the Alpha and Beta operating units. These units
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• We will discuss the appropriate grouping for purposes of recognizing and measuring an impairment loss. This issue pertains to the appropriate level at which comparability is important. • We will discuss audit considerations concerning when testing is appropriate for grouping of long-lived assets for purposes of recognition and measurement of an impairment loss. • We will discuss whether the Company’s approach for testing goodwill for impairment after recognizing an impairment charge related to a long-lived asset group classified as held-and-used is appropriate. This issue pertains to whether it is feasible to have a long-lived asset impairment without goodwill impairment. • We will discuss whether the Company should consider restoring the previous carrying amounts of these long-lived assets.

GAAP Codification:
Section 360-10-35-17 of the Code states that an impairment loss shall be recognized if the carrying value of a fixed asset is not recoverable and exceeds its fair value. The carrying value of the fixed asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and disposal of the asset. An impairment loss shall be measured by the amount by which the carrying value exceeds the fair value.
Section 360-10-35-23 of the Code states that for the purposes of recognition and measurement of an impairment loss,

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