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Eagle Impairment Loss

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Case 2: Eagle Impairment Loss

1. We have referred to IAS 36 to make the decision on the amount that should be impaired by Eagle in Italy. Since in the case it says that there are qualitative factors that suggest an impairment is likely, we have to evaluate based on the recoverability test. IAS claims that we can recognize an impairment loss under the following circumstances: “If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss.”(IAS36-59). To be able to determine the amount impaired, we have to find the definition of recoverable amount. On Page 13 in IAS 36, the recoverable amount of an asset is, “the higher of its fair value less costs to sell and its value in use. (P-13 IAS 36) So, the impairment loss is 1100, 000-900,000=200,000

2. According to the FASB, “An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value.”(360-10-35-17) However, in this case the recoverable costs is 1,150,000 which is larger than the carrying value 1,100,000. Thus, we do not need to record the impairment loss under GAAP.

3. Part 1
IFRS
Under IFRS, “A cash-generating unit to which goodwill has been allocated shall be tested for
Impairment annually, and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. If the recoverable amount of the unit exceeds the carrying amount of the unit, the unit and the goodwill allocated to that unit shall be regarded as not impaired. If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity shall recognize the impairment loss in accordance with paragraph 104.”

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