Fixed Asset Impairment Accounting

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Fixed Asset Impairment Accounting

There is an impairment loss on an item of property, plant, and equipment if the carrying amount of the asset is not recoverable and exceeds its fair value.

The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows you expect to result from the use and disposition of the asset. These cash flow estimates should incorporate assumptions that are reasonable in relation to the assumptions the entity uses for its budgets, forecasts, and so forth. If there are a range of possible cash flow outcomes, then consider using a probability-weighted cash flow analysis.

Test for an impairment loss whenever circumstances indicate that an asset’s carrying amount may not be recoverable. Examples of such instances are:

Significant decrease in the asset’s market price
Significant adverse change in the asset’s manner of use, or in its physical condition
Significant adverse change in legal factors or the business climate that could affect the asset’s value
Excessive costs incurred to acquire or construct the asset
Historical and projected operating or cash flow losses associated with the asset
The asset is more than 50% likely to be sold or otherwise disposed of significantly before the end of its previously estimated useful life

If you recognize an impairment loss, the new carrying amount of the asset is its former carrying amount, less the impairment loss. This means that you should alter the depreciation of that asset to factor in its now-reduced carrying amount.

You cannot reverse a previously-recognized impairment loss.