Accounting- Ida Impairment
Ida U.S. Operations:
Ida Inc. (Ida) is a manufacturing company with operations in the United States and Spain. Ida is a U.S. subsidiary of a U.K. entity and prepares its financial statements in accordance with U.S. GAAP for reporting to its U.S.-based lender and in accordance with IFRS in reporting to its parent. Ida owns and operates a commercial building that at year-end 2010 represents a a cash-generating unit (CGU) under IFRS and a long-lived asset classified as held and used under U.S. GAAP. One of Ida’s competitors sold its commercial building for an amount significantly less than its asking price in December 2010. The competitor’s building is located across the street from Ida’s building, has approximately the same square footage, and was built five years after Ida’s building was constructed. The following information was provided regarding Ida’s commercial building as of December 31,2010:
Carrying Amount $4,500,000 Value in Use $4,000,000 Fair Market Less Cost to Sell $3,800,000 Fair Market Value $3,900,000 Undiscounted Future Cash Flows $4,200,000
Ida Spanish Operations:
Ida acquired a smaller competing company located in Spain, and the acquisition resulted in goodwill being recorded. Assume that (1) the activities in Spain represent the lowest level at which internal management monitors goodwill and (2) the Spanish operations represent CGU under IFRS and reporting unit under U.S. GAAP. At the end of 2009 under GAAP and IFRS the recoverable amount of the asset including goodwill exceeded its carrying amount, suggesting that the goodwill allocated to the Spanish operations was impaired. At the end of 2010 a new legislation act was passed restricting exports of Ida’s main product. The following information relates to the CGU/reporting unit of Ida’s Spanish operations before impairment analysis:
Cash $50,000 PP&E $3,000,000 Land $150,000
Ida Inc. (Ida) is a manufacturing company with operations in the United States and Spain. Ida is a U.S. subsidiary of a U.K. entity and prepares its financial statements in accordance with U.S. GAAP for reporting to its U.S.-based lender and in accordance with IFRS in reporting to its parent. Ida owns and operates a commercial building that at year-end 2010 represents a a cash-generating unit (CGU) under IFRS and a long-lived asset classified as held and used under U.S. GAAP. One of Ida’s competitors sold its commercial building for an amount significantly less than its asking price in December 2010. The competitor’s building is located across the street from Ida’s building, has approximately the same square footage, and was built five years after Ida’s building was constructed. The following information was provided regarding Ida’s commercial building as of December 31,2010:
Carrying Amount $4,500,000 Value in Use $4,000,000 Fair Market Less Cost to Sell $3,800,000 Fair Market Value $3,900,000 Undiscounted Future Cash Flows $4,200,000
Ida Spanish Operations:
Ida acquired a smaller competing company located in Spain, and the acquisition resulted in goodwill being recorded. Assume that (1) the activities in Spain represent the lowest level at which internal management monitors goodwill and (2) the Spanish operations represent CGU under IFRS and reporting unit under U.S. GAAP. At the end of 2009 under GAAP and IFRS the recoverable amount of the asset including goodwill exceeded its carrying amount, suggesting that the goodwill allocated to the Spanish operations was impaired. At the end of 2010 a new legislation act was passed restricting exports of Ida’s main product. The following information relates to the CGU/reporting unit of Ida’s Spanish operations before impairment analysis:
Cash $50,000 PP&E $3,000,000 Land $150,000