Question

Last year the company had quite an interesting year and they noticed that one of their intangible assets has became impaired. What should the company do to ensure the proper amount of impairment is recorded? What happens if the intangible asset appreciates in value in the subsequent year?

Answer 1

Impairment of assets is the diminishing in quality, strength amount, or value of an asset. The treatment of impairment can be done under two ways:

1. Impairment under IFRS: An asset is impaired when its carrying value (original cost less accumulated depreciation) exceeds the recoverable amount. The recoverable amount is the greater of its fair value less any selling costs and its value in use. The value in use is the present value of its future cash flow stream from continued use. If impaired, the asset's value must be written down on the balance sheet to the recoverable amount. An impairment loss, equal to the excess of carrying value over the recoverable amount, is recognized in the income statement.

2. Impairment under US GAAP: An asset is considered impaired if the carrying value is greater that the asset's future undiscounted cash flow stream. If impaired, the asset's value is written down to fair value on the balance sheet and a loss, equal to the excess of carrying value over the fair value of the asset is recognized in the income statement.

What if the intangible asset appreciates in value in the subsequent year?

Under IFRS, an impairment loss can be reversed if the asset's value recovers in the future. However, the loss reversal is limited to the original impairment loss.

Under US GAAP, loss recoveries are typically not permitted.