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How do companies test assets for impairment? If an asset is impaired, how do companies write...

How do companies test assets for impairment? If an asset is impaired, how do companies write them down?

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Answer #1

Following indicators needed to be tested: -         

  1. External source
    1. Asset market value declined significantly
    2. Significant change with adverse effect in which entity operates
    3. Market interest rate increased resulting in the reduction in present value
    4. Carrying amount of net assets > market cap
  2. Internal source
    1. Obsolescence or physical damage of an asset
    2. Economic performance of asset worse than expected

Impairment loss is written off to profit and loss account. If the assets is revalued then to that extent it is written off to comprehensive income and revaluation surplus is reduced.

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