Question

You are a senior auditor and have been assigned to test the impairment calculations of Machinery for Beetow AG, an industrial manufacturer based in Germany. Beetow maintains a listing on the NY Stock Exchange in the U.S.

The following information was taken from the fixed asset records of Beetow as of December 31, 2022:
Required: Answer each of the following. Show your work.
1. Using IAS 36, what is the amount, if any, of the Impairment Loss for 2022?
2. Under U.S. GAAP, what is the amount, if any, of the Impairment Loss for 2022? (Assume that the present value of expected future cash flows also closely approximates fair value).
3. In 2023, assume that the economy strengthens and the value of the asset rises significantly. Briefly discuss the impairment accounting implications regarding this asset in 2023 under IFRS and US GAAP

Answer 1

Without specific financial figures, we cannot calculate the exact impairment loss for Beetow AG under IAS 36 or U.S. GAAP for 2022. IFRS allows for impairment loss reversals if conditions improve, but U.S. GAAP does not permit reversals of previously recognized impairment losses.

Step-by-step explanation:

To determine the amount of impairment loss for 2022 under IAS 36, Beetow AG should first assess if any impairment indicators are present. If indicators are identified, the entity must then calculate the asset's recoverable amount, which is the higher of the asset's fair value less costs of disposal and its value in use.

An impairment loss occurs when the carrying amount of the asset exceeds its recoverable amount. The actual amount of impairment loss would be the difference between the carrying amount and the recoverable amount. Unfortunately, without specific numbers regarding the carrying amount and recoverable amount of the machinery, we cannot calculate the exact impairment loss.

Under U.S. GAAP, the process is somewhat similar. An impairment loss is recognized if the carrying amount is not recoverable and exceeds the fair value of the asset. The impairment loss would be measured as the amount by which the carrying amount exceeds the fair value of the asset. Again, without concrete values, the specific impairment loss cannot be determined.

Considering the scenario in 2023, under IFRS, if there is a reversal in impairment loss due to the increased value of the asset, then the previously recognized impairment loss can be reversed, with the reversal being limited to the original impairment loss amount. However, under U.S. GAAP, once an impairment loss is recorded, it cannot be reversed even if the fair value of the asset subsequently increases.