Monetary

Accounting for the Impairment of Long-Lived Assets

In order to measure an impairment loss, several assumptions and estimates are required. The recognition of an asset impairment loss may have an impact on the reported earnings of a company.

SFAS No. 121 requires that companies with long-lived assets, certain intangibles, and goodwill related to those assets to be held and used or disposed of, investigate whether or not the carrying value of those assets are recoverable. The carrying value of assets is considered not recoverable when the sum of the expected future net cash inflows to be generated by an asset is less than the asset’s carrying value. This statement also written on PSAK48.

In recognizing the asset impairment, the asset’s carrying value should then be written down to fair value and an asset impairment loss recognized for the difference. Fair value of the asset is the amount at which the asset culd be bought or sold in a current transaction between willing parties. For assets to be held and used, the reduced carrying value of the asset becomes its new cost basis. Restoration of previously recognized impairment losses is prohibited, the accounting for long-lived impaired assets to be held and used is much the same as the lower-of-cost-or-market method for inventories. For assets to be disposed of which had an impairment loss recognized, subsequent revisions in estimates of fair value less cost to sell are reported as adjustments to the carrying value of the asset to be disposed of, to the extent of the previously recognized impairment loss. Depreciation is suspended for assets to be disposed of.

Identify Possible Asset Impairment

Companies investigate whether an asset’s carrying value is not recoverable. That investigation should be ongoing, rather than when asset impairment is obvious. Some indicators suggested that would trigger a company to assess whether or not there is asset impairment include:

1. The market value of an asset has...