Just Question 1~3 with full explanation including organization, facts, issues, applicable literature (GAAP, IFRS), analysis, and conclusion. Thanks!

Case 10-2 Ida's Impairment Ida Inc. (Ida) is a manufacturing company with operations in the United States and Spain. As a U.S. subsidiary of a U.K. entity, Ida prepares its financial statements in accordance with (1) U.S. GAAP for reporting to its U.S.-based lender and (2) IFRSs in reporting to its parent. U.S. Operations In addition to other assets, Ida owns and operates a commercial building in the United States that is carried at its cost less any accumulated depreciation and any accumulated impairment losses. As of December 31, 2010, the building represents: A cash-generating unit (CGU) under IFRSs. A long-lived asset classified as held and used under U.S. GAAP. In December 2010, one of Ida's competitors sold its commercial building for an amount significantly less than its asking price. The competitor's building is located across the street from Ida's building, has approximately the same square footage, and was built five years after Ida's building was constructed. In preparing its 2010 financial statements, Ida's management has provided the following information regarding the building as of December 31, 2010 (assume these values have been evaluated by Ida's independent auditor and found to be reliable): Ida's Building 12/31/10 (in thousands) Carrying amount $4,500 Value in use $4,000 Fair market value less cost to sell $3,800 Fair market value $3,900 Undiscounted future cash flows $4,200 Spanish Operations In 2008, Ida acquired a smaller competing company located in Spain, and this acquisition resulted in goodwill being recorded. Assume that (1) the activities in Spain represent the lowest level at which internal management monitors goodwill and (2) the Spanish operations represent a CGU under IFRSs and a reporting unit under U.S. GAAP. At the end of 2008 and 2009: Under IFRSs, the recoverable amount of the CGU, including goodwill, exceeded its carrying amount. Copyright 2009 Deloitte Development LLC All Rights Reserved. Case 10-2: Ida's Impairment Page 2 Under U.S. GAAP, the fair value of the reporting unit, including goodwill, exceeded its carrying amount. Therefore, the goodwill allocated to the Spanish operations was regarded as unimpaired. At the end of 2010, the newly elected government passed legislation significantly restricting exports of Ida's main product. The information below relates to the CGU/reporting unit of Ida's Spanish operations before the impairment analysis. Carrying Value of Ida's Spanish Operations Before Impairment Analysis 12/31/10 (in thousands) Cash Property, plant, and equipment (PP&E) Land Goodwill Total assets Liabilities Carrying value $50 3,000 150 300 $3,500 (1,000) $2,500 As a result of the change in legislation, Ida's production will be significantly affected for the foreseeable future. In addition, external industry reports estimate a stagnant growth rate for the foreseeable future. The significant export restriction and the resulting production decrease are impairment indicators that require Ida to estimate the recoverable amount of its operations as of the end of 2010. Ida's management noted the following as of December 31, 2010: The value in use of the CGU is $2.1 million. The present value of future cash flows from the CGU/reporting unit is $2.0 million. The $2.0 million represents the fair value of the CGU/reporting unit. The fair value of the PP&E is $3.1 million. However, it is not possible to estimate the recoverable amount of the individual PP&E assets. The fair value of all other identifiable assets and liabilities equals their carrying value. The cost to sell the CGU/reporting unit would be $100,000. Assume that Ida's independent auditors reviewed the methods, significant assumptions, and related calculations for the above values and found them reliable. The remaining useful life of Ida's identifiable assets is six years as of the beginning of 2010. Ida uses straight-line depreciation and anticipates no residual value. Copyright 2009 Deloitte Development LLC All Rights Reserved. Case 10-2: Ida's Impairment Page 3 Required: Question 1 As of December 31, 2010, does Ida need to test the U.S. commercial building for recoverability under (1) U.S. GAAP and (2) IFRSs? Question 2 If a recoverability test is needed under U.S. GAAP, what amount of impairment (if any) should Ida record on the U.S. commercial building when reporting to its U.S.-based lender as of December 31, 2010? Question 3 If a recoverability test is needed under IFRSs, what amount of impairment (if any) should Ida record on the U.S. commercial building when reporting to its parent as of December 31, 2010? Question 4(a) On the basis of the information provided, under U.S. GAAP, is goodwill associated with the Spanish operations impaired as of December 31, 2010? If so, determine the impairment loss. Question 4(b) On the basis of the information provided, under IFRSs, is goodwill associated with the Spanish operations impaired as of December 31, 2010? If so, determine the impairment loss and the new carrying value of the assets and CGU under IFRSs. Question 5 Assume that during 2011, the effects of the export laws on Ida's Spanish operations are less dramatic than initially expected by management. As a result, management estimates that at the end of 2011, the recoverable amount of its Spanish operations CGU/reporting unit increased to $2.6 million. On the basis of this information and the information from Question 4, calculate the reversal of loss, if any, and the carrying value as of December 31, 2011, under (1) U.S. GAAP and (2) IFRSs. The remaining useful life of PP&E is five years at the beginning of 2011. Assume that there have been no other changes in the carrying value of other assets or liabilities during 2011. Copyright 2009 Deloitte Development LLC All Rights Reserved. IAS/IFRS Property, plant, and equipment are tangible assets that shall initially be stated at cost. Depreciation shall be p separately for each significant component of an item of property, plant, and equipment on a reasonable and systematic basis over the useful life of the asset, except for assets that are classified as held for sale and inves property that is carried at fair value. Component depreciation is required under IFRS in contrast to U.S. GAA where it permitted but less frequently used. Land is also generally not depreciated. Borrowing costs are requi be capitalized as a component of the cost. (Expensing these borrowing costs is not an option as was previous case and an option in U.S. GAAP). Property, plant, and equipment that is classified as held for sale shall be r at the lower of carrying amount or fair value less cost to sell. After an asset is initially recognized, an entity m carry an asset class at a revalued amount if fair value can be measured reliably. Valuing property, plant, and, equipment at historical cost less accumulated depreciation is referred to as the cost model comparable to U.S GAAP. The valuation of property, plant, and equipment at fair value less accumulated depreciation is referred the revaluation model under IFRS, which is an option not allowed under U.S. GAAP. The revaluation model in recording increases in fair value to the equity account in other comprehensive income referred to as the \"revaluation surplus\" account. Decreases in fair value first are charged to the accumulated \"revaluation surpl account in other comprehensive income. Decreases in fair value are first charged against the balance in the \"revaluation surplus\" account and any additional amount is recorded as a loss on the income statement. The revaluation model depreciates the asset based on the useful life and the fair value of the asset. Evaluation for impairment shall be made if there is an indication that an asset's carrying amount exceeds its recoverable amount. Whenever the carrying amount of an asset exceeds its recoverable amount, an impairme shall be recognized in profit or loss for assets carried at historical cost, or treated as a revaluation decrease fo carried at a revalued amount. Reversal of impairment losses recognized in prior years may be necessary whe impairment losses recognized for the asset no longer exist or have decreased. The reversal shall be recorded e income or as a revaluation increase depending on the accounting method used, the asset's carrying amount, a amount of the reversal. Recoverable value is compared with the carrying amount to measure impairment. Recoverable value is the fair value of the asset, which is based on the higher of the amount a market participa would pay less cost to sell or its value in use. Value in use is estimated based on the present value of the cash associated with the asset. Often, the asset being valued does not have an independent cash flow and conseque can only be valued as part of a group of assets based on the cash flows generated from a cashgenerating unit (CGU). CGUs are \"the smallest identifiable group of assets that generates cash inflows that are largely indep of the cash inflows from other assets or groups of assets (IAS 36, paragraph 6 ).\"CGUs are a key element i onestep approach to measurement of impairment of assets. IAS/IFRS guidance in this chapter does not apply to: (a) biological assets associated with agricultural activit the 330 Inventory chapter for guidance) and (b) minerals and similar nonregenerative resources. However chapter does provide guidance on property, plant, and equipment used in developing or maintaining the asset included in (a) and (b). U.S. GAAP Property, plant, and equipment shall be carried at historical cost and depreciated over the estimated useful lif related asset. Land is generally not depreciated. Property, plant, and equipment to be held and used shall be r for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset m be recoverable. Property and equipment to be disposed of by sale shall be reported at the lower of carrying am or fair value less cost to sell, and no further depreciation is charged on such property. Certain property assets characteristics common to intangibles (e.g., internally developed computer software or films). The accountin these assets is discussed in the 350 Intangibles Goodwill and Other chapter. Certain differences exist between U.S. GAAP and IFRSs in the accounting and financial reporting for property, plant, and equipment. For a discussion of these differences, see the \"4.1 Property, Plant and Equipment \" and 4.4 Impairment\" sections of the publication Comparison between U.S. GAAP and International Financial Reporting Standards and the \"K. Property, Plant and Equipment \" section of the SEC Staff Paper A Comparison of U.S. GAAP and IFRS. Recognition (IAS/IFRS)SummaryProperty, Plant, and EquipmentCosts relating to property, plant, and equipment should be recognized as assets when: (a) it is probable that the property, plant, or equipment will provide future economic benefits to the entity; and (b) reliable measurement of the property, plant, or equipment's cost can be performed. Costs should be evaluated when incurred (including at acquisition, during construction, and subsequent to initial recognition) to determine whether expensing or capitalization treatment is appropriate.Judgment in applying the appropriate treatment to costs is required since IAS 16, Property, Plant and Equipment , does not specify the unit of measure for recognition and because circumstances vary by entity. For example, an entity may determine that it is appropriate to combine individually insignificant items, such as tools and dies, and then apply the recognition criteria to the combined value. Spare parts and servicing equipment may potentially be recognized as inventory or accounted for as property, plant and equipment, depending on the facts and circumstances (see the \"10 Overall Depreciation, Amortization, and Depletion Spare Parts \" section of this chapter).For guidance on the recognition of government grants relating to property, plant, and equipment, see the \"Government Grants and Assistance - Recording Grants Receivable \" and \"Government Grants and Assistance - Repayment of a Grant Previously Received \" sections of the 958 NotforProfit Entities chapter. IAS/IFRS Literature International Accounting Standards (IAS) 8.10.12, Accounting Policies, Changes in Accounting Estimates and Errors - Accounting Policies - Selection and Application of Accounting Policies 16.6, Property, Plant and Equipment Definitions 16.7.10, Property, Plant and Equipment Recognition 16.11, Property, Plant and Equipment - Recognition - Initial Costs 36.10, Impairment of Assets Identifying an Asset that may be Impaired International Financial Reporting Interpretations Committee (IFRIC) IFRIC 18 Transfers of Assets from Customers Interpretations International Accounting/Financial Reporting Standards Guide Part II: General Standards 1 Chapter 28: Property, Plant, and Equipment Property, Plant, and Equipment Recognition (U.S. GAAP)SummaryAn entity shall reflect property in its financial statements when the significant benefits and risks of ownership rest with the entity. Leased property that qualifies for operating lease accounting (see the "10 Overall Lease Classification Lessees General " section of the 840 Leases chapter) is an exception to this principle.An entity will usually hold legal title to the property. In many cases, however, title will be held by others, but the property still shall be reflected as an asset of the entity (e.g., assets held under leases that are capitalized and assets to which the title rests with others to secure obligations of the entity or for other purposes).U.S. GAAP Literature SEC Staff Views SAB Topic 10A, Utility Companies Financing by Electric Utility Companies through Use of Construction Intermediaries (FASB Accounting Standards Codification Section 980810S99) FASB Accounting Standards Codification 360, Property, Plant, and Equipment, 10 Overall, 25 Recognition 840, Leases, 30 Capital Leases 1 25 Recognition Lessees Overall Guidance, paragraphs 251 and 252 2 30 Initial Measurement Lessees Overall Guidance, paragraphs 301 through 304 3 35 Subsequent Measurement 3.1 Lessees Capital Lease Asset Amortization, paragraph 351 3.2 Lessees Capital Lease Obligation, paragraphs 356 through 3510 3.3 Lessees Lease Modifications, paragraphs 3515 through 3520 3.4 Lessors SalesType Leases and Direct Financing Leases, paragraph 3523 3.5 Lessors Refunding of TaxExempt Debt Under a Direct Financing Lease, paragraph 3531 4 40 Derecognition Lessees Lease Modifications, paragraph 401 5 45 Other Presentation Matters Lessees, paragraphs 451 through 453 840, Leases, 40 SaleLeaseback Transactions, 15 Scope and Scope Exceptions Lessees Other Consideration, paragraph 156 932, Extractive Activities Oil and Gas 1 235 Notes to Financial Statements, 50 Disclosure General Publicly Traded Companies Continued Capitalization of Exploratory Well Costs, paragraph 5016 2 360 Property, Plant, and Equipment 2.1 25 Recognition General Stratigraphic Test Wells, paragraph 2518 2.2 35 Subsequent Measurement General Successful Efforts Depreciation, Depletion, and Amortization, paragraph 353 3 720 Other Expenses, 25 Recognition 980, Regulated Operations, 840 Leases, 55 Implementation Guidance and Illustrations Other Guidance AICPA Audit and Accounting Guides (AAG) NPO 9.03.04, NotForProfit Organizations Chapter 9: Property and Equipment Recognition and Measurement Principles NPO 9.05.06, NotForProfit Organizations Chapter 9: Property and Equipment Contributed Property and Equipment Interpretations Program Method of Accounting BNA Portfolios 5116 - Accounting Principles and Financial Statements 5143 - Asset Retirement Obligations Recoverability of Carrying AmountsGeneral (IAS/IFRS) SummaryIndications of ImpairmentEvaluation for impairment should be performed if there is an indication that an asset's carrying amount exceeds its recoverable amount. The recoverable amount of property, plant, and equipment should be estimated whenever available information indicates as of the reporting date that an asset may be impaired. Indications of impairment include, but are not limited to, the possible decline in the fair value of a property, changes in market demographics or interest rates, significant cost overruns or adverse operating or cash flow results, and possible adverse legal or regulatory changes. Even if an asset is not impaired, indications of impairment may suggest that the estimated useful life, the method of depreciation, or the residual value of the property may require review and modification.Recognition of Impairment LossAn asset is impaired if its recoverable amount is less than its carrying amount. An impairment loss is recognized for the difference between the asset's carrying amount and its recoverable amount, and subsequent depreciation on the asset is adjusted to reflect the revised carrying amount. Recognition of a liability is necessary if an impairment loss exceeds the carrying amount of the related asset and another standard requires the recognition of the liability. Deferred taxes may result from a difference between the asset's revised carrying amount and its tax base. (See the 740 Income Tax chapter for guidance on the calculation and accounting treatment of deferred tax.)An impairment loss on an asset carried under the cost model should be recognized in profit or loss. For assets carried at revalued amounts (see the "10 Overall Basis Other Than Cost (Revaluations) " section of this chapter), the impairment loss should be reported as a revaluation decrease. When a revaluation decrease occurs, the decrease is applied first to reduce or eliminate any revaluation surplus for the asset, with any remaining amount of decrease recognized in profit or loss. Recoverable AmountAn asset's recoverable amount is the higher of its: (a) fair value less costs to sell; or (b) value in use. Fair value less costs to sell is the amount an entity could obtain on selling the asset in an arm's length transaction net of disposal costs. Value in use is the present value of estimated future cash flows expected to arise from the continuing use of the asset and its ultimate disposal. Paragraphs 30 through 57 of IAS 36, Impairment of Assets, provide extensive guidance on estimating value in use.If there is an indication that an asset may be impaired, the recoverable amount should be estimated for the individual asset. If it is not possible to estimate the recoverable amount for an individual asset, recoverable amounts should be estimated at the cashgenerating unit level (see discussion later in this section). An individual asset's recoverable amount cannot be estimated if: (a) the individual asset does not generate largely independent cash flows; and (b) an entity cannot determine that the individual asset's value in use is close to its fair value less costs to sell.Reversal of Impairment LossesAn entity assesses at each balancesheet date whether an impairment loss recognized in prior years may no longer exist or may have decreased. Impairment losses previously recognized on property, plant, and equipment are reversed only when the estimates used in arriving at the recoverable amount have changed since the recognition of the last impairment loss. If such a situation exists, the entity estimates the recoverable amount of the asset and, if the asset's recoverable amount has increased, the carrying amount of the asset is increased to its recoverable amount, provided the increase is not due solely to the unwinding of the discount. Subsequent depreciation on the asset is adjusted to reflect the revised carrying amount. Impairment losses are only reversed to the extent that the asset is not valued above the carrying amount that would have resulted (net of depreciation) without any recognized impairment loss. Reversal of an impairment loss is recognized in income when the assets are valued using the cost model. An impairment recovery of a revalued asset is recognized in profit or loss to the extent that it reverses any impairment loss on the asset that was previously recognized in profit or loss, and the remainder of the reversal is credited to the revaluation surplus account in equity (other comprehensive income account).CashGenerating Unit(CGU)An individual asset's recoverable amount cannot be estimated if: (a) the individual asset does not generate largely independent cash flows; and (b) an entity cannot determine that the individual asset's value in use is close to its fair value less costs to sell. In this situation, the impairment analysis is performed at the cashgenerating unit level (see definition below). In performing this analysis, the recoverable amount of the cashgenerating unit to which the individual asset belongs is determined unless one of the following two exceptions in paragraph 22 of IAS 36 exist: (a) the asset's fair value less costs to sell is higher than its carrying amount; or (b) the asset's value in use can be estimated to be close to its fair value less costs to sell and fair value less costs to sell can be determined.\"Any impairment charge, and any subsequent reversal thereof, is calculated by comparing the recoverable amount of the cashgenerating unit to the carrying amount of the unit. The recoverable amount of a cashgenerating unit is determined in the same manner as it is determined for an individual asset. The basis used to determine the recoverable amount should then be used to determine the cashgenerating unit's carrying amount.A cashgenerating unit is the smallest group of assets that includes the asset under review and that produces largely independent cash inflows in comparison to the cash inflows of other assets or asset groups (even if the unit's output is used internally). Such units should consistently contain the same assets or types of assets between reporting periods. Estimated cash inflows should be based on arm's length transaction prices even if the unit's output is subject to transfer pricing.The cashgenerating unit approach is used to evaluate impairment of corporate assets (e.g., a corporate headquarters building) because a corporate asset's individual recoverable amount cannot be determined due to the asset's lack of independent cash flows. Paragraph 6 of IAS 36 defines corporate assets as \"assets other than goodwill that contribute to the future cash flows of both the cashgenerating unit under review and other cash generating units.\"Corporate assets should be considered when performing an impairment review of a cash generating unit. If corporate assets can be allocated on a reasonable and consistent basis to a cashgenerating unit under review, the impairment test includes the allocable share of the corporate assets. If an entity concludes that it is unable to allocate all of its corporate assets on such a basis to the cashgenerating unit under review, it should perform a further test for impairment, which is termed a \"topdown\" test. In this topdown test, the entity evaluates its operations to find the smallest cashgenerating unit that both: (a) includes the cashgenerating unit being evaluated for impairment; and (b) allows for reasonable and consistent allocation of the corporate assets. The entity then compares the recoverable amount of this larger cashgenerating unit to its carrying amount (including the allocated amount of corporate assets), and recognizes any impairment loss in the manner described elsewhere in this section.Any necessary impairment charge is allocated to reduce the carrying amount of assets in the cash generating unit by: (a) reducing any goodwill allocated to the unit (see the "30 General Intangibles Other than Goodwill Acquired IntangiblesGeneral Guidance Impairment Evaluation-Assets Not Subject to Amortization " section of the 350 Intangibles - Goodwill and Other chapter); and (b) reducing the other assets of the unit (including allocated corporate assets) on a prorata basis using each asset's carrying amount. The reductions in the carrying amount of each asset in the unit are treated for accounting purposes as impairment losses on those individual assets. As discussed earlier, whether an impairment loss on an individual asset is recognized in profit or loss depends on whether the asset is accounted for under the cost model or the revaluation model. Such prorata reduction should not, however, result in reducing the carrying amount of an asset below the greater of the asset's fair value less costs to sell or its value in use (provided those amounts are determinable), or if those amounts are negative, the carrying amount of the asset should not be reduced below zero. Any excess impairment loss is only recognized as a liability if required by another standard (see the \"20 Loss Contingencies \" section of the 450 Contingencies chapter for guidance).When an impairment loss on a cashgenerating unit is reversed, the reversal is allocated on a prorata basis using the carrying amounts of the assets in the cashgenerating unit (exclusive of goodwill). The impairment loss reversal for each asset is accounted for similar to a reversal on an individual asset. However, the carrying amount of each asset should not be increased above its recoverable amount or the net carrying amount that would have existed had no previous impairment losses been recognized. Any amount of the impairment reversal not allocated to the asset as a result of applying the guidance in the previous sentence is allocated to the other assets in the cashgenerating unit on a prorata basis (exclusive of goodwill).Assets Classified as Held for SaleNoncurrent assets that are classified as held for sale are measured at the lower of carrying amount and fair value less costs to sell (see the \"20 Discontinued Operations - Key Dates \" section of the 205 Presentation of Financial Statements chapter for guidance on the held for sale classification criteria). Any writedowns to fair value less costs to sell on such assets are recognized as impairment losses.If the fair value less costs to sell of an asset that is classified as held for sale subsequently increases, the impairment reversal cannot exceed the amount of previously recognized impairment losses on the asset. (See the \"10 Overall Recoverability of Carrying Amounts - Assets to Be Disposed of by Sale \" section of this chapter for further guidance on the measurement of assets that are classified as held for sale.)ThirdParty CompensationWhen compensation will be received from a third party due to property being given up, lost, or impaired, the compensation should be recognized in profit or loss when it becomes receivable.IAS/IFRS Literature International Financial Reporting Standards (IFRS) 5.20.21, NonCurrent Assets Held for Sale and Discontinued Operations - Measurement of NonCurrent Assets (or Disposal Groups) Classified as Held for Sale - Recognition of Impairment Losses and Reversals International Accounting Standards (IAS) 16.6, Property, Plant and Equipment Definitions 16.63, Property, Plant and Equipment - Measurement after Recognition Impairment 16.65.66, Property, Plant and Equipment - Measurement after Recognition - Compensation for Impairment 36.2.5, Impairment of Assets Scope 36.6, Impairment of Assets Definitions 36.7.17, Impairment of Assets Identifying an Asset That May Be Impaired 36.18.23, Impairment of Assets Measuring Recoverable Amount 36.25.29, Impairment of Assets Measuring Recoverable Amount Fair Value Less Costs to Sell 36.30.57, Impairment of Assets Measuring Recoverable Amount Value in Use 36.58.64, Impairment of Assets Recognising and Measuring an Impairment Loss 36.65, Impairment of Assets CashGenerating Units and Goodwill 36.66.73, Impairment of Assets CashGenerating Units and Goodwill - Identifying the CashGenerating Unit to Which an Asset Belongs 36.74.79, Impairment of Assets CashGenerating Units and Goodwill - Recoverable Amount and Carrying Amount of a CashGenerating Unit 36.100.103, Impairment of Assets CashGenerating Units and Goodwill - Recoverable Amount and Carrying Amount of a CashGenerating Unit - Corporate Assets 36.104.108, Impairment of Assets CashGenerating Units and Goodwill - Impairment Loss for a Cash Generating Unit 36.109.116, Impairment of Assets Reversing an Impairment Loss 36.117.121, Impairment of Assets Reversing an Impairment Loss Reversing an Impairment Loss for an Individual Asset 36.122.123, Impairment of Assets Reversing an Impairment Loss Reversing an Impairment Loss for a Cash Generating Unit 36.A1.A21, Impairment of Assets Appendix A: Using Present Value Techniques to Measure Value in Use 36.IE1.IE22, Impairment of Assets Illustrative Examples Example 1Identification of CashGenerating Units 36.IE23.IE32, Impairment of Assets Illustrative Examples Example 2 Calculation of Value in Use and Recognition of an Impairment Loss 36.IE38.IE43, Impairment of Assets Illustrative Examples Example 4 Reversal of an Impairment Loss 36.IE44.IE53, Impairment of Assets Illustrative Examples Example 5 Treatment of a Future Restructuring 36.IE54.IE61, Impairment of Assets Illustrative Examples Example 6 Treatment of Future Costs 36.IE69.IE79, Impairment of Assets Illustrative Examples Example 8 Allocation of Corporate Assets Interpretations Accounting Policies, Changes in Accounting Estimates and Errors - Interpretations of IAS 8 Interpretation 351, Impairment of an Asset's Carrying Value Accompanied by a Change in the Asset's Useful Life Recoverability of Carrying AmountsScope (U.S. GAAP) SummaryAs a general rule, a property asset should not be carried at amounts in excess of recoverable value regardless of its classification as held for sale, development and sale, rental, investment, or used in operations. When the carrying amount of a property exceeds its fair value, the asset is considered impaired; however, for property to be held and used, an impairment loss is not recognized unless the asset's carrying amount is not recoverable (see the "10 Overall Recoverability of Carrying Amounts Assets to Be Held and Used " section of this chapter). Property includes capital leases of lessees, longlived assets of lessors subject to operating leases, and proved oil and gas properties that are being accounted for using the successful efforts method of accounting. Property does not include goodwill, other intangibles not being amortized that are to be held and used, or financial assets.Recoverability shall be assessed whenever a sale or other disposition (e.g., spinoff, abandonment, and so forth) of a property is anticipated. Further, a change in circumstances or events may require an entity to consider whether an impairment writedown is required. Those situations may include a possible decline in the market price of an asset, a change in its use (e.g., from commercial property to residential property), an adverse action by a regulator, an unexpected decline in the physical condition of a property, poor cash flows or less than desirable operating results, or construction cost overruns. In addition, an entity is required to evaluate impairment whenever there is a current expectation to sell or dispose of a property significantly before the end of its planned useful life. Even if impairment is not indicated, a change in depreciation method or rate may be required.Tests of recoverability and necessary writedowns are based on the anticipated use of the asset. When evaluating impairment, an asset is classified in one of three ways: held and used in operations, held for sale, or held for disposition other than by a sale (e.g., abandonment, exchanges measured using the recorded amount of the property given up in the exchange, or assets to be distributed to owners in a spinoff).If a property is part of a group that includes other assets and liabilities, recoverability shall be applied to the group. For properties considered held and used, the asset group represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets or liabilities. For a longlived property to be disposed of by sale or otherwise, that group represents assets to be disposed of together as a group in a single transaction, and liabilities directly associated with those assets that will be transferred in the transaction.U.S. GAAP Literature SEC Staff Views SAB Topic 5CC, Miscellaneous Accounting Impairments (FASB Accounting Standards Codification Section 36010S99) FASB Accounting Standards Codification 360, Property, Plant, and Equipment, 10 Overall 1 15 Scope and Scope Exceptions Impairment or Disposal of LongLived Assets Transactions, paragraphs 154 and 155 2 35 Subsequent Measurement Impairment or Disposal of LongLived Assets LongLived Assets to Be Disposed of Other than by Sale, paragraphs 3546 through 3549 3 40 Derecognition Impairment or Disposal of LongLived Assets LongLived Assets to Be Exchanged or to Be Distributed to Owners in a Spinoff, paragraph 404 4 45 Other Presentation Matters Impairment or Disposal of LongLived Assets LongLived Assets to Be Disposed of Other than by Sale Presentation of LongLived Assets to Be Disposed of Other than by Sale, paragraph 4515 840, Leases, 20 Operating Leases, 35 Subsequent Measurement Lessors Leased Property, paragraph 353 Interpretations Accounting for Restructuring Costs Section A - Corporate Restructuring and the Interaction among the Relevant Accounting Standards 1 Interpretation A1, Definition of a Corporate Restructuring 2 Interpretation A7, Asset Impairments Triggered by a Restructuring Plan 3 Interpretation A8, Classification of Restructuring and Impairment Charges 4 Interpretation A9, Correlation in Timing of Asset Impairments and Restructuring Charges 5 Interpretation A10, LongLived Assets Affected by a Plan to Exit an ActivityEvaluated for Impairment as Held and Used or Held for Sale Section B - Restructurings, Including Those of an Entity Acquired in a Business Combination 1 Interpretation B1, Definition of Exit or Restructuring Activity Impairments of LongLived Assets Interpretations of Subtopic 36010 Interpretations 36010.A through F Interpretation 36010.FF: Goodwill and Other Assets in Subtopic 36010 Impairment Test Various Independent Power Producer Accounting and Financial Reporting Issues Interpretation 2. Assessing impairment of project development costs BNA Portfolios 5116 - Accounting Principles and Financial Statements 5143 - Asset Retirement Obligations 2012 CCH. All Rights Reserved. Assets to Be Held and Used (U.S. GAAP)Summary Generally, property should be carried at cost less accumulated depreciation. However, an impairment loss is required to be recognized if the carrying amount of property is not recoverable. The carrying amount of property is not recoverable if it exceeds the undiscounted sum of cash flows expected to result from the use and eventual disposition of the property. If a property or asset is not recoverable, the impairment loss is measured by the excess of the asset's carrying amount over its fair value. If an impairment loss is recognized, a new cost basis is established. Subsequent writeups in value are not permitted.Properties that are being held and used shall be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. If a property is part of a group that includes other assets and liabilities, recoverability shall be applied to the group by reviewing the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets or liabilities.The following examples of events or changes in circumstances indicate that the carrying amount of an asset shall be assessed for recoverability: A significant decrease in the market value of an asset; A significant change in the extent or manner in which an asset is used or a significant change in the physical condition of the asset; A significant adverse change in legal factors or in the business climate that could affect the value of an asset, including an adverse action or assessment by a regulator; An accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset; 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 an asset; and A current expectation that, more likely than not (i.e., greater than 50%), an asset will be sold or otherwise disposed of significantly before the end of its estimated useful life. Considerable judgment is required both in estimating future cash flows and the amount of any writedown. The fact that an entity or a component of an entity has not been profitable in the recent past does not necessarily indicate that the property will meet the criteria for being an impaired asset. 7 Paragraphs 8-17 specify when recoverable amount shall be determined. These requirements use the term 'an asset' but apply equally to an individual asset or a cash-generating unit. The remainder of this Standard is structured as follows: (a) paragraphs 18-57 set out the requirements for measuring recoverable amount. These requirements also use the term 'an asset' but apply equally to an individual asset and a cash-generating unit. (b) paragraphs 58-108 set out the requirements for recognising and measuring impairment losses. Recognition and measurement of impairment losses for individual assets other than goodwill are dealt with in paragraphs 58-64. Paragraphs 65-108 deal with the recognition and measurement of impairment losses for cash-generating units and goodwill. (c) paragraphs 109-116 set out the requirements for reversing an impairment loss recognised in prior periods for an asset or a cash-generating unit. Again, these requirements use the term 'an asset' but apply equally to an individual asset or a cash-generating unit. Additional requirements for an individual asset are set out in paragraphs 117-121 , for a cash-generating unit in paragraphs 122 and 123 , and for goodwill in paragraphs 124 and 125 . (d) paragraphs 126-133 specify the information to be disclosed about impairment losses and reversals of impairment losses for assets and cash-generating units. Paragraphs 134-137 specify additional disclosure requirements for cashgenerating units to which goodwill or intangible assets with indefinite useful lives have been allocated for impairment testing purposes. 8 An asset is impaired when its carrying amount exceeds its recoverable amount. Paragraphs 12-14 describe some indications that an impairment loss may have occurred. If any of those indications is present, an entity is required to make a formal estimate of recoverable amount. Except as described in paragraph 10, this Standard does not require an entity to make a formal estimate of recoverable amount if no indication of an impairment loss is present. 9 An entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. 10 Irrespective of whether there is any indication of impairment, an entity shall also: (a) test an intangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test may be performed at any time during an annual period, provided it is performed at the same time every year. Different intangible assets may be tested for impairment at different times. However, if such an intangible asset was initially recognised during the current annual period, that intangible asset shall be tested for impairment before the end of the current annual period. (b) test goodwill acquired in a business combination for impairment annually in accordance with paragraphs 8099 . 11 The ability of an intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty before the asset is available for use than after it is available for use. Therefore, this Standard requires an entity to test for impairment, at least annually, the carrying amount of an intangible asset that is not yet available for use. 12 In assessing whether there is any indication that an asset may be impaired, an entity shall consider, as a minimum, the following indications: External sources of information [Effective prior to January 1, 2013.] (a) during the period, an asset's market value has declined significantly more than would be expected as a result of the passage of time or normal use. [Effective for annual reporting periods beginning on or after January 1, 2013. See paragraph 140I for additional effective date information.] (a) there are observable indications that the asset's value has declined during the period significantly more than would be expected as a result of the passage of time or normal use. (b) significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated. (c) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset's value in use and decrease the asset's recoverable amount materially. (d) the carrying amount of the net assets of the entity is more than its market capitalisation. Internal sources of information (e) evidence is available of obsolescence or physical damage of an asset. (f) significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.* * Once an asset meets the criteria to be classified as held for sale (or is included in a disposal group that is classified as held for sale), it is excluded from the scope of this Standard and is accounted for in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations . (g) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected. [Effective prior to January 1, 2013.] Dividend from a subsidiary, jointly controlled entity or associate (h) for an investment in a subsidiary, jointly controlled entity or associate, the investor recognises a dividend from the investment and evidence is available that: [Effective for annual reporting periods beginning on or after January 1, 2013. See paragraph 140H for additional effective date information.] Dividend from a subsidiary, joint venture or associate (h) for an investment in a subsidiary, joint venture or associate, the investor recognises a dividend from the investment and evidence is available that: (i) the carrying amount of the investment in the separate financial statements exceeds the carrying amounts in the consolidated financial statements of the investee's net assets, including associated goodwill; or [Effective prior to January 1, 2013.] (ii) the dividend exceeds the total comprehensive income of the subsidiary, jointly controlled entity or associate in the period the dividend is declared. [Effective for annual reporting periods beginning on or after January 1, 2013. See paragraph 140H for additional effective date information.] (ii) the dividend exceeds the total comprehensive income of the subsidiary, joint venture or associate in the period the dividend is declared. 13 The list in paragraph 12 is not exhaustive. An entity may identify other indications that an asset may be impaired and these would also require the entity to determine the asset's recoverable amount or, in the case of goodwill, perform an impairment test in accordance with paragraphs 80-99 . 14 Evidence from internal reporting that indicates that an asset may be impaired includes the existence of: (a) cash flows for acquiring the asset, or subsequent cash needs for operating or maintaining it, that are significantly higher than those originally budgeted; (b) actual net cash flows or operating profit or loss flowing from the asset that are significantly worse than those budgeted; (c) a significant decline in budgeted net cash flows or operating profit, or a significant increase in budgeted loss, flowing from the asset; or (d) operating losses or net cash outflows for the asset, when current period amounts are aggregated with budgeted amounts for the future. 15 As indicated in paragraph 10, this Standard requires an intangible asset with an indefinite useful life or not yet available for use and goodwill to be tested for impairment, at least annually. Apart from when the requirements in paragraph 10 apply, the concept of materiality applies in identifying whether the recoverable amount of an asset needs to be estimated. For example, if previous calculations show that an asset's recoverable amount is significantly greater than its carrying amount, the entity need not re-estimate the asset's recoverable amount if no events have occurred that would eliminate that difference. Similarly, previous analysis may show that an asset's recoverable amount is not sensitive to one (or more) of the indications listed in paragraph 12. 16 As an illustration of paragraph 15, if market interest rates or other market rates of return on investments have increased during the period, an entity is not required to make a formal estimate of an asset's recoverable amount in the following cases: (a) if the discount rate used in calculating the asset's value in use is unlikely to be affected by the increase in these market rates. For example, increases in short-term interest rates may not have a material effect on the discount rate used for an asset that has a long remaining useful life. (b) if the discount rate used in calculating the asset's value in use is likely to be affected by the increase in these market rates but previous sensitivity analysis of recoverable amount shows that: (i) it is unlikely that there will be a material decrease in recoverable amount because future cash flows are also likely to increase (eg in some cases, an entity may be able to demonstrate that it adjusts its revenues to compensate for any increase in market rates); or (ii) the decrease in recoverable amount is unlikely to result in a material impairment loss. 17 If there is an indication that an asset may be impaired, this may indicate that the remaining useful life, the depreciation (amortisation) method or the residual value for the asset needs to be reviewed and adjusted in accordance with the Standard applicable to the asset, even if no impairment loss is recognised for the asset. 1. ISSUE: RECOVERABILITY TEST?? GAAP)) YES 35-21 A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The following are examples of such events or changes in circumstances: a. A significant decrease in the market price of a long-lived asset (asset group) b. A significant adverse change in the extent or manner in which a long-lived asset (asset group) is being used or in its physical condition c. A significant adverse change in legal factors or in the business climate that could affect the value of a long-lived asset (asset group), including an adverse action or assessment by a regulator d. An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset (asset group) e. 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 (asset group) f. A current expectation that, more likely than not, a long-lived asset (asset group) will be sold or otherwise disposed of significantly before the end of its previously estimated useful life. The term more likely than not refers to a level of likelihood that is more than 50 percent. 2. If NEEDED, WHAT AMOUNT of IMPAIRMENT(if any) should be recorded on building when reporting to its parent as of December 31, 2010? carrying amount > undiscounted future cash flows 1. RECOVERABILITY TEST?? IFRS)) YES, carrying amount exceeds its recoverable amount. RA=3800 or 4000 whichever is higher. [IAS36.7-17]. 3. If NEEDED, WHAT AMOUNT of IMPAIRMENT(if any) should be recorded on building when reporting to its parent as of December 31, 2010