Advertisement
Online Test Banks
Score higher
See Online Test Banks
eLearning
Learning anything is easy
Browse Online Courses
Mobile Apps
Learning on the go
Explore Mobile Apps
Dummies Store
Shop for books and more
Start Shopping

How to Impair Intangible Assets

An impairment loss takes place when a company makes a judgment call that the carrying value of an intangible asset on the company balance sheet is less than fair value, or what an unpressured person would pay for the asset in an open marketplace. Companies have to periodically test intangible assets to see whether there’s potential for any loss due to impairment.

If the impairment loss isn’t recoverable, under U.S. GAAP, the company has to adjust the books to reflect this lessening in value. The basic criteria for measuring recoverability centers on whether the asset’s carrying value is recoverable from its undiscounted cash flows. If it isn’t recoverable, the fair value test is used to compare the intangible asset’s fair value to its carrying amount, to measure impairment.

U.S. GAAP in Accounting Standards Codification (ASC) 360-10-35 gives financial accountants guidance on the types of events and circumstances to look for in determining whether assets have to be evaluated for recovery.

But remember, intangibles can be limited life, indefinite life, or goodwill. Each is impaired differently.

Impairment Test Summary
Type of Intangible Asset Impairment Test
Limited life Perform the recovery test.
If lacking recovery, test fair value. If fair value exceeds carrying amount, no further action is needed.
Otherwise, record impairment loss for the difference between fair value and carrying value.
Indefinite life (except goodwill) Test fair value. If fair value exceeds carrying amount, no further action is needed.
Otherwise, record impairment loss for the difference between fair value and carrying value.
Goodwill Test fair value. If fair value exceeds carrying amount, no further action is needed.
Otherwise, compare fair value of goodwill to carrying value of goodwill. If fair value exceeds carrying amount, no further action is needed.
Otherwise, record impairment loss.
blog comments powered by Disqus
Advertisement
Advertisement

Inside Dummies.com

Dummies.com Sweepstakes

Win an iPad Mini. Enter to win now!