I am working with our ABC client, and I wanted to let you know the issue regarding their Available-for-sale equity securities. For the second consecutive quarter, the client has been recording a decline in market value for several of their securities in “other comprehensive income”. The securities’ fair value are now below their cost. The issue with this situation is to determine if the securities are considered impaired, and if such impairment is considered “other than temporary”, in which case the company would have to account for the loss in a different way. The FASB Accounting Standards Codification (ASC) 320-10-15-5a states that topic 320-10 applies to investments in equity securities that have readily determinable fair values, therefore …show more content…
The intent and ability of the holder to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. In this case, just this quarter the fair value of the securities decreased enough to be below the cost, so the extent to which the market value has been less than its costs its low. Also, the client asserts that he has the ability and intend to hold the securities, until their value recovers. Because of those two factors, and the lack of evidence that states otherwise, in this period, it’s not reasonable to state that the impairment is “other than temporary”. Therefore, I suggest that the client should continue to record the loss in “other than comprehensive income”. Also, each period the issue must be revised to determine if there is new evidence that proves that the impairment is “other than temporary”, in which case, other accounting must be done. Additionally, determine each period if the client continues to assert that the company still has the same ability and intent to hold the securities, and if the time the fair value is below the cost of the securities is large enough to consider the impairment “other than temporary”. If you have any suggestions within my evaluation, please, let me
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.
Based on ASC 320-10-35-34 I mentioned above, the other-than-temporary impairment should be recoded as $28 ($100-$72) as of December 31, 20X1. On January 31, 20X2, when the price of the stock went up to $75, the other-than-temporary impairment should be recoded as $25 ($100-$75). If the share price was $95 instead of $75 on January 31, 20X2, I think no other-than-temporary impairment needs to be recorded, because there is no material decrease occurred.
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.
Goodwill Impairment is the Goodwill that has become or is considered to be of lower value than at the time or purchase. From an accounting perspective, when the carrying value of the goodwill exceeds the fair value, then it is considered to be impaired. Negative publicity about a firm can create goodwill impairment, as can the reduction of brand-name recognition. Since the Financial Accounting Standards Board (FASB) first introduced its standards update on testing for goodwill impairment (ASU 2011-08), entities with goodwill on their balance sheet have had the option when testing goodwill for impairment to first assess qualitative factors as a basis for determining whether it is necessary to perform the traditional two-step approach described in ASC Topic 350. The optional qualitative assessment is commonly referred to as “step zero.”
1. According to the case, it shows that management of M determined that a loss would be “probable” and the estimate range would be $15 million to $20 million. However, they determined $17 million would be the “most likely” amount of loss.
* Test for recoverability — If indicators are present, perform a recoverability test by comparing the sum of the estimated undiscounted future cash flows attributable to the asset (group) in question to their carrying amounts (as a reminder, entities cannot record an impairment for a held and used asset unless the asset first fails this recoverability test).
The following are the required steps to identify, recognize and measure the impairment of a long-lived asset (group) to be held and used:
The authoritative guidance for asset impairment is to ensure that impairment is recorded and dealt with as depreciation. The scope of the standard is writing off of assets and depreciation. According to the guidance of 360-10-35, it address how long-lived assets that are intended to be held and used in an entity’s business shall be reviewed for impairment. The impairment loss can only be recognized if the carrying amount of a long-lived assets is not recoverable and
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.
After calculating the fair value of Snowy Ridge’s assets it was necessary to test for impairment. Impairment was tested by comparing the carrying value of each asset to its fair value (see table 2). The carrying value of marketable securities as of June 30th was $4,500,000. The current fair value of marketable securities was found to be 4,565,000, a positive difference of$ 65,000. Changes in marketable securities are reported even without impairment, thus an adjustment was made (see table 3). The carrying value of the mountain division as of June 30th was $12,360,000. The current fair
Family Finance Co. (FFC), a publicly traded commercial bank, invests in a variety of securities in order to enhance returns greater than interest paid on bank deposits and other liabilities. The primary investments of FFC are collateralized debt obligation, mortgage-backed securities, auction-rate securities, equity securities in nonpublic companies, interest rate swaps, and a fuel swap for gasoline. FFC measures the derivative at fair value, presenting the portion of the fair value change by using the fair value hierarchy. This memo will present the appropriate classification in the fair value
In 1973 the Financial Accounting Standards Board (FASB) was established to set the financial accounting standards in the United States of America for nongovernmental entities. These standards are collectively called U.S. Generally accepted Accounting Principles, or U.S. GAAP. The Securities and Exchange Commission (SEC) and the American Institute of Certified Public Accountants acknowledge the authority of these standards (FASB, n.d). A “proven, independent due process” is used to collect the viewpoints of the financial statements prepares and users for the constant improvement of these standards. An Accounting Status Update(ASU) is not an authoritative source however documents the amendments to communicate the changes in the FASB Codification for a user to understand the reason and future of those changes (FASB, n.d).
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.
25-7 If a loss cannot be accrued in the period when ti is probable that an asset had been impaired or a liability had been incurred because the amount of loss cannot be reasonable estimated, the loss shall be charged to the income of the period in which the loss can be reasonably estimated and shall not be charged retroactively to an earlier period. All estimated losses for loss contingencies shall be charged to income rather than charging some to income and others to retained earnings as prior period adjustments.”
eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount