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necessity of impairment testing of assets

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18y ago

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What is the mean of impairment of the assets?

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7AS 3b seSUDtirTe'pfinciples and methodolgy for accounting for impairments of non-current assets and goodwill. Where possible individual non-current assets should be tested for impairment, ver


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Goodwill is typically found on the balance sheet under the non-current assets section, specifically listed after intangible assets. It represents the excess amount paid during an acquisition over the fair value of the identifiable net assets acquired. If a company has multiple intangible assets, goodwill will usually be listed separately to provide clarity on its valuation. It is important to monitor goodwill regularly, as it may be subject to impairment testing.


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What is goodwill capitalized?

Goodwill is capitalized when a company acquires another business for a price higher than the fair value of its identifiable assets and liabilities. In accounting, goodwill represents the intangible value of a company's reputation, customer relationships, and other non-physical assets. It is recorded as an asset on the balance sheet and subject to annual impairment testing.


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What is impairment cost?

When assets are recorded a company's balance sheet, they are valued at historical cost (what was paid for the asset), less any accumulated depreciation or amortization if applicable. This holds true even if the market value of the asset is considerably more than what the company paid for it. However, if the market value of a company's assets drops significantly below the asset's historical cost, then it sometimes becomes necessary to revalue the asset at the lower market value. This revaluation is called impairment. When it is appropriate to impair an asset depends on the type of asset in question. The difference between the current book value of the asset, and the value of the asset after impairment, is your impairment expense (cost).


How do you account for mergers?

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Answer - Goodwill impairment occurs when the value of the goodwill of a business unit declines to an amount less than the carrying value of the goodwill on the company's books. With the adoption of SFAS 142 by the Financial Accounting Standards Board (FASB), audited companies are now required to test goodwill annually for impairment. This testing is done by valuing the business unit having the goodwill.


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How to amortize Intangible assets?

Only to amortize intangible assets which are recognised as finite useful life. There are tow models, one is cost model, another is revaluation model. The way to charge intangible assets' amortisation is same as charging depreciation on physical non current assets. Carrying amount (net book value) is equal cost or re-valuated amount less any subsequent accumulated amortisation and any impairment losses. However, Revaluations should be regularly made so the carrying amount does not differ from the recoverable amount (it is the higher amount of net realisable value or value in use) at the end of the reporting period. On the other hand, If the intangible assets are recognised as definite useful life, there is no need to charge amortisation on the profit and loss. But annually impairment test should be carried out. A impairment loss or a revaluation surplus will be adjusted on both income statement and balance sheet. Hope it is helpful!