Impairment question - easy one understand, question, physical, assets, trying

brainsX

Do we test for impairment on physical assets? I’m trying to understand how misclassifying depreciation as a nonoperation/nonrecurring event… Please shed some light. Thx!

cyber21

I think you only test for impairment for intangibles. No?
So physical assets are held at historical cost, but if the fair value of the physical assets is less than the historical cost, won’t you have to reduce the value under both US GAAP & IFRS. Reversal of this impairment is allowed under IFRS, but not under US GAAP.

karoliukas

I think fair value is estimated for reporting Unit ( GAAP ) or cash-generating unit ( IFRS ) . Then impairment is 1-step in IFRS if carrying value
2-Step in GAAP if carrying value of reporting unit less than fair value of reporting unit , then estimate fair value of assets ( PPE ) also , then new GoodWill is fair value of reporting unit - fair value of assets in reportingunit. If this number is zero or negative , nothing further needs to be done ( GAAP).

bchadwick

I’m trying to identify misclassified items that can affect the Operating Income. Did some deep thinking and this what I came up with.
Tangible assets can be impaired
Company X estimates a higher salvage value (assume straightline depr) on their fixed asset. Now their deprication expense will be understated and operating income will be overstated. Eventually this asset will be tested for impairment because their Current Value  Market Value. That impairment will be classified as a nonrecurring item therefore their operating income will look overstated.