Question

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What are the two steps in the two-step process of measuring impairments?
a. Percentage of assets test for total impaired assets.
b. Timing test on when the cash flows are received.
c. Measurement of the impairment and record the loss.
d. Test for impairment using the future cash flows.

Answer 1

The two steps in the two-step process of measuring impairments are testing for impairment using future cash flows and measuring the impairment and recording the loss.

Step-by-step explanation:

The two steps in the two-step process of measuring impairments are:

1. Test for impairment using the future cash flows: In this step, the present value of the future cash flows expected to be generated by the asset is compared to its carrying value. If the present value is less than the carrying value, then the asset is considered impaired and the second step is performed.
2. Measurement of the impairment and record the loss: In this step, the impairment loss is calculated as the difference between the carrying value of the asset and its fair value. The impairment loss is then recorded in the company's financial statements.