Actg 351 Case 2

• What impact should the potential foreclosure and extinguishment of debt have on the cash flows used to perform the recoverability test?

Goodwill is considered impaired when the implied fair value of goodwill in a reporting unit of a company is less than its carrying amount, or book value, including any deferred income taxes. By qualitative factors, if the fair value is less than its book value (likelihood more than 50%), two step of the goodwill impairment test is necessary. According to ASC 350-20-35-2 and 3(A&B&D), if the company determines that it is not more likely than not that fair value is less than the book value, it does

Moreover, there is no sufficient information provided in ASC 410-20-25-10 to determine the fair value of the ARO due to the uncertainty of LOI to require removing the asbestos. This also applies to two of the warehouses residing in areas with no laws in place requiring special handling and disposal of the asbestos on building demolition or renovation. Lastly, the remaining 13 warehouses with asbestos residing in states with special asbestos handling and disposal laws, LOI has owned and operated for more than 50 years only incurring just minor renovations and repairs and has no plans in future to make significant renovations or demolish except for minor repairs and maintenance. The problem with ARO is the presence of an indeterminate settlement data as in ASC 410-20-25-10.

Since 2001, amortization would not permitted for goodwill assets. Instead write-down of goodwill entity with continuous losses must be done.

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.

As discussed above, if indicators of impairment exist for an asset (group) to be held and used, an entity determines whether the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question is less than its carrying amount. If those undiscounted cash flows are less than

ASC 320-10-35-34: “The fair value of the investment would then become the new amortized cost basis of the investment and shall not be adjusted for subsequent recoveries in fair value.”

Because $2.3 million is less than the Carrying Value of the asset group of $4.7 mm, ($2.3 million < $4.7 million), The Impairment loss will be Fair Value of Asset less carrying amount of asset group.

According to Section 360-10-35-21, examples of events that would cause an asset to be tested for impairment include a significant decrease in the market price of a long-lived asset, or a asset group, a significant adverse change in the extent or manner in which a long-lived asset or asset group is being used or in its physical condition, a significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset, or asset group, and a current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with the use of a long-lived asset or asset group.

If these estimated undiscounted future cash flows are less than the carrying value of the asset, an impairment charge is recognized for the excess, if any, of the asset’s carrying value over its estimated fair value.

In intellectual property assets and software showed its opening balance, closing balance, additions, disposals, accumulated amortization and impairment currency translation differences and net amount. Goodwill just showed the opening and closing balance and currency translation difference not any impairment loss. However, in intangible capital work in progress, it also showed other more informationabout amount transferred to software intangibles and transferred from PPE. At the end of the notes 12 of intangible assets, it provided additional information about the amortization charge that was recognized in general and administration expenses in the statement of comprehensive income （CSL annual report 2011）and impairment tests for cash generating units containing goodwill. CSL Behring and CSL Blotheraples all were CSL’s goodwill. The total intangible assets in 2011 were lower than before because of amortization in every year.

Financial statements indicate that the carrying value of the total net assets, $51,271 is greater than then predicted fair value of $37,800. This indicates that impairment potentially exists, and further analysis shall be conducted. In the second step of the qualitative assessment, Sprint’s fair value of goodwill is predicted to be $17,246 assuming the company’s share price falls to $14 in the fourth quarter. The fair value estimate is lower than the carrying value of $30,718, indicating that impairment has occurred. Sprint’s loss on impairment, the difference between the fair and book value, is calculated to be $13,471.

Another argument refuting the decision to carry forward 2009 values finds its root in the ASC. According to ASC 350-20-35-29, only when all of the three criteria below are met may a company carry forward fair value determinations. The criteria are: a) assets and liabilities of the unit should not have changed significantly. Hockey and Fitness seem to meet this criterion. b) The last fair value determination of the unit should be substantially larger than their carrying amount at the time. Hockey and Fitness meet this criterion. c) The likelihood that the current fair value is less than the carrying amount should be low4. Hockey and Fitness’s current fair value is possibly less than their carrying amount, not meeting this criterion. Because not all of the criteria for a fair value carry forward are met, the fair value of Hockey and Fitness may not be carried forward from 09.

Ida Inc. is a manufacturing company that has operations in both the United States as well as Spain. Ida is a U.S. subsidiary of a U.K. company and as such reports its financial statements according to both GAAP and IFRS. Ida owns several assets including a building which is valued at cost minus accumulated depreciation and impairment and is represented as a Cash Generating Unit under IFRS and long-lived asset under GAAP. A Cash generating unit is the smallest group of assets that can generate cash and is independent of other asset’s cash flow under IFRS. A long-lived asset is any asset that a company expects to control for at least a year. In 2008, Ida acquired a Spanish company headquartered in Spain. In 2010, one of Ida’s competitors sold their similar building nearby for way below asking price. Later on in 2010 a new government regime passed legislation limiting the exporting of Ida’s chief product in all markets. The new legislation led to a downturn in the market for Ida’s product which when coupled with the actual legislation serves as an impairment indicator which requires Ida to estimate recoverability. Impairment is a reduction in a company’s capital and specifically when the capital is less than the par value of the company’s stock (Investopedia.com). Under IFRS, impairment is when the carrying amount of an asset exceeds the book value, while under GAAP, impairment exists when the carrying amount of an asset is greater than than the undisclosed sum of

According to AASB 136 an entity should ensure that assets are carried at no more than their recoverable amount, therefore at the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be impaired. An impairment loss is recognised whenever recoverable amount is below carrying amount. The recoverable amount is defined as the higher value of fair value less costs to sell and value in use. Further, paragraph 25 and 30 AASB 136 describes some elements should be considered in the calculation of fair value and value in use, including an estimate of the future cash flows.