Home Computer FASB Essay Example

million [$8.0 - $3.2 = $4.8] should be recognized, representing the difference between the carrying amount of the video monitor asset group ($8 million) and the fair value of the asset group ($3.2 million). Alternative 2 - No impairment charge should be recognized because the combined undistorted cash flows of the building and video monitor assets exceed their combined carrying amount.

Both Alternative 1 and Alternative 2 require a check for impairment according to Paragraph 8 of Statement 144, which states that a long-lived asset or asset group should be tested for recoverability if there are any events or changes in circumstances suggesting its carrying amount may not be recoverable. Some examples of these conditions are outlined in Paragraph 8.
Both the video monitor and printer manufacturing asset groups need to undergo an impairment analysis due to the presence of Conditions (b) and (f) mentioned in the paragraph. Condition (b) refers to a significant adverse change in how the asset is used or its physical condition, while condition (f) pertains to the expectation of selling or disposing of the asset before its estimated useful life ends. Statement 144 offers guidance on how assets should be grouped for the impairment analysis, suggesting that they should be combined with other assets and liabilities at a level where their identifiable cash flows are mostly independent from others. However, applying this Statement will only result in reducing the carrying amount of long-lived assets if there is an impairment loss. To assess the recoverability of a long-lived asset group, future cash flow estimates must be made for its remaining useful life. Proponents of Alternative 1 believe that both equipment and "special interior

building infatuation assets" used in video monitor operations should undergo a two-step impairment test as outlined in Statement 144. Management has determined that this grouping represents the lowest level where identifiable cash flows are largely independent from other assets and liabilities for this particular asset group.The projected cash flows for this group should extend until the end of the 10-month wind-down period, which represents the lifespan of the primary asset. Hence, it is necessary to compare the total carrying value of the asset group with its undistorted cash flows. Considering that the carrying value is $8 million and the projected undistorted cash flows amount to $3.5 million, an impairment loss needs to be recorded.

This loss is calculated by finding the difference between the carrying value of assets and their estimated fair value, resulting in $4.8 million [$8.0 - $3.2 = $4.8]. The Seattle building functions as headquarters for various operations and contributes to cash flows from video monitor operations; however, since it also accommodates other activities, associating it with a specific group of assets and liabilities becomes challenging. Therefore, during the impairment test, it is important not to include the Seattle facility in the asset group being evaluated.Supporters of Alternative 2 argue against comparing only cash flows from video monitor operations with equipment's carrying value because they believe that these cash flows derive from both video monitor assets' productivity and from contributions made by the building itself.In accordance with this alternative approach,the combined cash flows generated by both building and video monitor assets should be considered in relation to their combined carrying amount.At this level, the cash flows are mainly separate from other assets

and liabilities. According to this approach, the total combined cash flows equal $29.5 million ($3.5 million from future operations and $26 million from selling the building), which surpasses the combined carrying amount of $23 million for the building and equipment ($8.0 million + $15.0 million). As a result, since the carrying amount of the assets can be recovered, there is no sign of impairment loss. Alternative 1 was identified as the appropriate solution.