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Accounting for the Impairment of Long-Lived Assets
(SFAS No. 144)


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Discontinued Operations (SFAS No. 144)



 
New Rules of SFAS No. 144

Statement of Financial Accounting Standards (SFAS) No. 144
        a. 
Accounting for the Impairment or Disposal of Long-Lived Assets
        b.  Issued in August 2001
        c.  SFAS No. 144 deletes APB Opinion No. 30, Para. 13-18
                 (Accounting for the Disposal of a Segment of a Business)
        d.  SFAS No. 144 supersedes SFAS No. 121
                 (Accounting for the Impairment of Long-Lived Assets
                  and for Long-Lived Assets to Be Disposed of)

SFAS No. 144 retains the requirements of SFAS No. 121

        a.  to recognize an impairment loss
             --> only if the carrying amount is not recoverable
                  (from its undiscounted cash flows)

        b.  to measure an impairment loss
             --> as difference between
                   the carrying amount and fair value of the asset.

SFAS No. 144 removes goodwill from its scope
             --> SFAS No. 121 requirement
                   to allocate goodwill to long-lived assets (to be tested for impairment)
                   was eliminated.

SFAS No. 144 Does NOT Apply to
        a.  Goodwill
        b.  Intangible assets not being amortized
        c.  Servicing assets
        d.  Financial instruments
             (including investments in equity securities accounted for
              under the cost or equity method)
        e.  Deferred policy acquisition costs
        f.   Deferred tax assets
        g.   Unproved oil and gas properties
              (that are being accounted for using
                the successful-efforts method of accounting)
        h.  Assets whose accounting is prescribed by
                --> SFAS No. 50, 53, 63, 86, 90

Impairment is the condition
             --> that exists when
                   carrying amount exceeds fair value

Impairment loss is recognized only if
             --> the carrying amount is not recoverable
                   and
             --> the carrying amount exceeds fair value

Carrying amount is not recoverable if
             --> carrying amount exceeds
                   the sum of the undiscounted cash flows
                   (from the use and eventual disposition of the asset)

Impairment loss is measured as
             --> the amount by which carrying amount exceeds fair value
             = carrying amount of the asset - fair value of the asset

Best evidence of fair value of an asset
             --> quoted market prices in active markets

After an impairment is recognized,
             --> adjusted carrying amount of the asset
                   is accounted for as its new cost.
             --> for depreciable asset,
                   new cost basis is depreciated over the remaining useful life of that asset.

Restoration of previously recognized impairment losses
             --> is prohibited.

An impairment loss (for assets to be held and used)
             --> is reported as a component of
                   income from continuing operations before income taxes.

Old Rules of SFAS No. 121 (Superseded by SFAS No. 144)

Statement of Financial Accounting Standards (SFAS) No. 121
        a. 
Accounting for the Impairment of Long-Lived Assets
             and for Long-Lived Assets to Be Disposed of

        b.  Issued in March 1995
        c.  SFAS No. 121 was superseded by SFAS No. 144, August 2001

SFAS No. 121 Applies to
        a.  Long-lived assets
        b.  Certain identifiable intangibles
        c.  Goodwill related to those assets

SFAS No. 121 Applies to
               --> All entities

SFAS No. 121 Does NOT Apply to
        a.  Financial instruments
        b.  Long-term customer relationships of a financial institution
        c.  Mortgage and other service rights
        d.  Deferred policy acquisition costs
        e.  Deferred tax assets
        f.  Assets whose accounting is prescribed by
                --> SFAS No. 50, 53, 63, 86, 90

Impairment loss should be recognized if
             --> the sum of future cash flows
                   (expected to result from the use of the asset and its eventual disposition)
                   is less than the carrying amount of the asset.

Future cash flows
             = future cash inflows (expected to be generated by an asset)
               
- future cash outflows (expected to be necessary to obtain those inflows)

Impairment loss recognized
             = carrying amount of the asset - fair value of the asset

Best evidence of fair value of an asset
             --> quoted market prices in active markets
                  
After an impairment is recognized,
             --> reduced carrying amount of the asset
                   is accounted for as its new cost.
             --> for depreciable asset,
                   the new cost is depreciated over the asset's remaining useful life.   

Restoration of previously recognized impairment losses
             --> is prohibited.

An impairment loss (for assets to be held and used)
             --> is reported as a component of
                   income from continuing operations before income taxes.
 
  Accounting by Creditors for the Impairment of a Loan (SFAS No. 114, 118)
 
  Discontinued Operations (SFAS No. 144)







 
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Inventory Valuation Methods
Depreciation Methods
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