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Basic Question 2 of 13
Which of the following is compared with a long-lived asset's carrying value to determine whether a potential impairment exists (U.S. GAAP)?
B. The asset's estimated future undiscounted net cash flows
C. The asset's fair market value
A. The asset's estimated future discounted net cash flows
B. The asset's estimated future undiscounted net cash flows
C. The asset's fair market value
User Contributed Comments 9
| User | Comment |
|---|---|
| kalps | good question |
| xweibabson | why undiscounted net cash flow? |
| morpheus918 | Because the carrying amount is depreciated in future periods. The future depreciation just has to be covered by future cash flows. As long as that will happen, there is no impairment. |
| todolist | carrying value compared to undiscounted CF. Book value compared to fair value or DCF |
| 4002MK | Just to be clear, does carrying amount = book value? |
| rfvo | Yes, Book Value or Carrying Value and Fair Value or Market Value |
| Renaud1807 | Recoverability test: impaired if carrying value> undiscounted CF Loss measurement: loss is the excess of carrying value over the assets fair market value (if known). If unknown an estimate of present value of future CF Thus recovery test: undiscounted CF Loss amount: discounted CF |
| daveyd83 | Why can't it be compared to FMV? |
| quanttrader | recovery test: carrying value > undiscounted CF? if yes, then write down carrying value-fair value (if known), otherwise write down carrying value to discounted expected future cash flows. |
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Learning Outcome Statements
explain the impairment of property, plant, and equipment and intangible assets;
CFA® 2024 Level I Curriculum, Volume 3, Module 23.