1) (1) The U. S. GAAP section 360-10-35-21 states “A long-lived asset (asset group) shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable”. An example of an event like this is a significant decrease in the market price of a long-lived asset. As stated in the case, one of Ida’s competitors sold its extremely comparable commercial building for an amount significantly less than its asking price.
Since these assets are very similar in comparison, this significantly less price for the competitor’s building is an example of a decrease in the market price of Ida’s commercial building. Therefore under the U. S. GAAP, Ida needs to test the U. S. commercial building for recoverability. (2) Under IAS 36. 12, there are certain external factors that lead you to want to test for recovery such as a decline in market value. The sale of the building across the street is an example of one of those external factors.
IAS 36. 6 explains impairment and how to record impairment. Under IFRSs IAS 36. 66, the recoverable amount of cash-generating units (CGUs) should be determined for the individual asset. Therefore, a recoverability test must be done. 2) As of U. S. GAAP 360-10-35-17, when reporting to its U. S. based lender as of December 31, 2010, Ida should record $600 for impairment on the U. S. commercial building. Under GAAP, one must compare the fair value to the carrying amount.
Since the fair market value is $3,900 and the carrying amount is $4,500, impairment is calculated as the difference $600. *All dollars in thousands (U. S. GAAP 360-10-35-17) 3) Under IAS 36. 6, when reporting to its parent as of December 31, 2010, Ida should record $500 for impairment on the U. S. commercial building. The recoverable amount for the commercial building is $4,000. The carrying amount is $4,500. Since the carrying amount is greater than the recoverable, the impairment is the difference. *All dollars in thousands (IAS 36. 6)