Academic journal article Journal of Accountancy

FASB Issues Proposal on Long-Lived Asset Impairment

Academic journal article Journal of Accountancy

FASB Issues Proposal on Long-Lived Asset Impairment

Article excerpt

A Financial Accounting Standards Board exposure draft specifies how to account for impairment of longlived assets, identifiable intangible assets and the related goodwill.

The proposed statement requires assets being held and used by an entity to be reviewed for impairment when events or changed circumstances suggest the assets' carrying amounts may not be recoverable-in which case the entity must estimate the future net cash flows expected to result from the assets' use and eventual disposition. If this sum (undiscounted and without interest charges) is less than the assets' carrying amounts, the entity must recognize impairment losses based on the assets' fair value.

Assets an entity plans to dispose of will be measured at the lower of cost or fair value (less the cost to sell), with certain exceptions.

If adopted, the proposal will be effective for fiscal years beginning after December 15, 1994.

Narrowing alternatives. According to the FASB, practice inconsistencies have developed because accounting standards do not address when impairment losses relating to long-lived assets, identifiable intangible assets and the related goodwill should be recognized or how they should be measured.

"There have evolved different methods for measuring impairment losses and different methods for recognizing impairment," explained FASB project manager Paul Rohan, who noted surveys by the Financial Executives Institute had verified divergent measurement and recognition practices with respect to impairment. "Everyone who looked into the matter, including the American Institute of CPAs and the FASB emerging issues task force, concluded these practice differences were a problem," he continued. "The proposal achieves uniformity in measurement and recognition."

Commented Norman Strauss, chairman of the AICPA accounting standards executive committee (AcSEC), "In 1980 the AICPA asked the FASB to deal with the impairment of long-lived assets, and AcSEC is pleased FASB has done so. …

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