Initial measurement of property, plant and equipment
1. Measured at cost
2. Cost includes (A)
(A) all costs necessary to make the asset ready for intended use
3. During the construction period
–> certain interest costs are also capitalized
2. Cost includes (A)
(A) all costs necessary to make the asset ready for intended use
3. During the construction period
–> certain interest costs are also capitalized
Subsequent measurement of property, plant and equipment
1. Depreciation
2. Impairment of long-lived assets
3. Disposal of long-lived assets
2. Impairment of long-lived assets
3. Disposal of long-lived assets
Impairment and disposal of long-lived assets
SFAS 144, August 2001
“Accounting for the Impairment or Disposal of Long-Lived Assets”
“Accounting for the Impairment or Disposal of Long-Lived Assets”
Classification of long-lived assets
1. Long-lived assets held for sale
2. Long-lived assets to be held and used
2. Long-lived assets to be held and used
Long-lived assets “held for sale”
1. Presented separately in the statement of financial position
2. An asset is not depreciated while classified as “held for sale”
3. Measured at the lower of (B) and (C)
(B) carrying amount
(C) fair value less cost to sell
4. Newly acquired long-lived assets held for sale
–> measured at fair value less cost to sell, at the acquisition date
5. If (C) < (B)
–> a loss is recognized
6. If (B) > (C)
–> a gain is recognized up to “the cumulative loss” previously recognized
7. A gain or loss
–> adjusts the carrying amount of the asset
2. An asset is not depreciated while classified as “held for sale”
3. Measured at the lower of (B) and (C)
(B) carrying amount
(C) fair value less cost to sell
4. Newly acquired long-lived assets held for sale
–> measured at fair value less cost to sell, at the acquisition date
5. If (C) < (B)
–> a loss is recognized
6. If (B) > (C)
–> a gain is recognized up to “the cumulative loss” previously recognized
7. A gain or loss
–> adjusts the carrying amount of the asset
Discontinued operations
The results of operations of (1) and (2) are
–> reported separately as discontinued operations
(1) component that has been disposed of
(2) component that is classified as “held for sale”
–> reported separately as discontinued operations
(1) component that has been disposed of
(2) component that is classified as “held for sale”
Long-lived assets to be ‘held and used” are
–> tested for impairment
Impairment test
1. Step 1: Test for recoverability
–> when there is an indication that carrying amount may not be recoverable
2. Step 2: Measurement of impairment loss
–> if Step 1 shows that carrying amount is not recoverable
–> when there is an indication that carrying amount may not be recoverable
2. Step 2: Measurement of impairment loss
–> if Step 1 shows that carrying amount is not recoverable
Recoverability test
Carrying amount is not recoverable
–> if (D) < (B)
(B) carrying amount
(D) sum of “undiscounted” cash flows from the asset
–> if (D) < (B)
(B) carrying amount
(D) sum of “undiscounted” cash flows from the asset
Impairment loss
1. An asset is impaired when (E) < (B)
2. Impairment loss = (B) – (E)
(B) carrying amount
(E) fair value
2. Impairment loss = (B) – (E)
(B) carrying amount
(E) fair value
Impairment loss is not reversed
1. If an impairment loss is recognized
–> adjusted carrying amount becomes “new cost basis”
2. Impairment loss is “not” reversed
–> when there is a subsequent increase in fair value
–> adjusted carrying amount becomes “new cost basis”
2. Impairment loss is “not” reversed
–> when there is a subsequent increase in fair value