The difference if any in the impairment test for tangible long-term operating assets from intangible assets.
Answer to Problem 12.1Q
Yes the impairment tests for tangible-long term operating assets operating assets and intangible assets are identical, the only difference is, that in case of intangible assets test for impairment is to be conducted even if there is absence of impairment indicators.
Explanation of Solution
Tangible Assets:
Tangible assets are those assets that are physically present in an organization and will generate cash flows for a number of years.
Intangible Assets:
Intangible assets are those assets that are not physically present in an organization but have economic values and are capable to generate cash flows for a number of years.
The difference in the both tests can be explained in the points below:
- The impairment tests for tangible-long term operating assets and intangible assets are identical, the only difference is, that in case of intangible assets test for impairment is to be conducted even if there is absence of impairment indicators.
- Impairment is calculated by measuring the asset’s recoverable value, if such value is less than its carrying amount than an impairment loss is booked.
- Recoverable value is greater of (a) Fair value less cost to sell and; (b) Present value of expected cash flows expected from the asset.
Hence, the difference is that intangible assets are considered for impairment even if there is absence of impairment indicators while tangible assets are not.
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Chapter 12 Solutions
Intermediate Accounting
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