AuthorTopic: use discounted or undiscounted cash flow to revalue an asset?
@2017-01-01 18:23:27
One of the CFA online Mock test on Impairment loss kept coming and I kept missing it..

Under US.GAAP, are we to use the Discounted Cash Flow or the Undiscounted Cash flow to revalue the asset?

I thought we will use the Undiscounted Cash Flow because the Undiscounted is greater than the Discounted Cash Flow.

However, in this Mock, the explanation is that the asset failed the recoverability test because the Undiscounted C.F is lower than the Carrying Value, and thus used the Discounted Cash flow which is even lower than the Undiscounted C.F to write-down the asset.
@2017-01-02 22:53:18
Under USGAAP unlike as in IFRS is required 2 step approach.

1. step make a test to determine if impaired required by comparing asset’s BV (carryng amount) to undiscounted CF stream. If asset BV is greater than undiscounted CF, than 2. step applies.

2. step, if impaired asset should be wtitten down for a difference between asset BV and discounted CF stream or its fair value which one is greater. An impairment loss is recognized in P/L and new (impaired) asset value is recorded in BS.

CFA Discussion Topic: use discounted or undiscounted cash flow to revalue an asset?

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I am using your study notes and I know of at least 5 other friends of mine who used it and passed the exam last Dec. Keep up your great work!