Identify impairment situations and describe the two-step impairment process.

Identify impairment situations and describe the two-step impairment process.

 

1. Impairment is a two-step process.
   1. Step 1: __________ The long-term asset is impaired if future cash flows are less than book value.
   2. Step 2: If impaired, record loss: The impairment loss is the amount book value exceeds fair value.
2. IFRS see difference from GAAP,  page 347

 

Practice:  Northwest Catering owns and operates several restaurant services in Oregon, Washington, and Idaho. One restaurant chain has experienced sharply declining profits. The company’s management has decided to test the operational assets of the restaurants for possible impairment. The relevant information for these assets is presented below:
Determine the amount of the impairment loss, if any.

 

 

More Practice:  Listed below are five terms followed by a list of phrases that describe or characterize the terms. Match each phrase with the best term placing the number designating the term in the space provided.

1. Big bath	Net sales divided by average total assets; which measures the sales per dollar of assets invested.
2. Impairment	Net income divided by net sales; indicates the earnings per dollar of sales.
3. Profit margin	Net income divided by average total assets; measures the amount of net income generated for each dollar invested in assets.
4. Return on assets	Recording all losses in one year to make a bad year even worse.
5. Asset turnover	Occurs when the future cash flows (future benefits) generated for a long-term asset fall below its book value (cost minus accumulated depreciation).

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