Case Study : Ida Inc.

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Intro 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
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