Struggling with the bolded questions

Matt Holmes recently joined Klax Company as a staff accountant in the controller's office. Klax Company provides warehousing services for companies in several midwestern cities.

The location in Dubuque, Iowa, has not been performing well due to increased competition and the loss of several customers that have recently gone out of business. Matt's department manager suspects that the plant and equipment may be impaired and wonders whether those assets should be written down. Given the company's prior success, this issue has never arisen in the past, and Matt has been asked to conduct some research on this issue.

Instructions

If your school has a subscription to the FASB Codification, log in and prepare responses to the following. Provide Codification references for your responses.

a.

What is the authoritative guidance for asset impairments? Briefly discuss the scope of the standard (i.e., explain the types of transactions to which the standard applies).

360-10-05-4 shows that the authoritative guidance for asset impairments provides guidance for :

-recognition and measurement of the impairment of long-lived assets to be held and used.

-measurements of the long lived-asset to be disposed of by sale

-disclosures about the impairment or disposal of long lived assets and disposals of individually significant components of an entity

b.

Give several examples of events that would cause an asset to be tested for impairment. Does it appear that Klax should perform an impairment test? Explain.

We can find the reasons that an asset would be tested for impairment in 360-10-35-21. They can be tested if:

-there is a large decrease in the market price of the long-lived asset

- if there is a big adverse change in the extent or manner in which a long-lived asset is being used or in its physical condition.

- A large adverse change in legal factors or in the business climate that could affect the value of a long-lived asset , including an adverse action or assessment by a regulator

- An accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of a long-lived asset

- 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

- A current expectation that, more likely than not, a long-lived asset 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.

c.

What is the best evidence of fair value? Describe alternate methods of estimating fair value.

The best evidence of fair value can be found in 360-10-35-36. This states that long-lived assets that are similar in uncertainties dealing with timing amount, an expected present value technique is typically the appropriate technique to estimate fair value.