Based on the information provided, it does not appear that the criteria to classify assets as held for sale have been met for the troubled company. While a sale may be expected, there is no written or approved plan and significant uncertainties remain around obtaining approval and closing of any sale.

1. ASSET IMPAIRMENT
ANALYSES
Jennifer Goodman, CPA
July 23, 2010

2. A LITTLE ABOUT ME
THE
“TROUBLED COMPANY”

3. DISCUSSION TOPICS
 Asset impairment analysis: Why, Where, When and How
 Assets held for sale
 Troubled Company example
 US GAAP vs IFRS

4. WHY: WHY SHOULD YOU TAKE A CLOSER
LOOK AT ASSET IMPAIRMENT ACCOUNTING?
 Economic recession increases potential for impairment
of assets
 BIG adjustments
 Subjective
 Complex calculations
 Audit committee inquiries
 NOT because of potential tax deductions

5. GOODWILL IMPAIRMENT TREND
300 18%
Percentage of total population impaired
16%
250
14%
Number impaired
200 12%
10%
150
8%
100 6%
4%
50
2%
0 0%
2005 2006 2007 2008 2009
Years
Total Number Impaired Percentage Impaired Source : KPMG LLP
“Evaluating
Impairment Risk”

6. HOW DO YOU THINK THE ECONOMY WILL
PERFORM OVER THE NEXT 6 MONTHS?
The economy will remain the same – 34%
We’re headed for a double-dip recession – 29%
We’re on our way out of the recession – 19%
Who knows?!? – 16%
We’re headed for a strong recovery next year – 2%
CPA Letter Daily – July 20, 2010 - AICPA

7. WHY: WHY SHOULD YOU TAKE A CLOSER
LOOK AT ASSET IMPAIRMENT ACCOUNTING?
 Economic recession increases potential for impairment
of assets
 BIG adjustments
 Subjective
 Complex calculations
 Audit committee inquiries
 NOT because of potential tax deductions

8. FAIR VALUE CONSIDERATIONS IN ASSET
IMPAIRMENT
“The price that would be received to sell an asset in an
orderly transaction between market participants.”
 Level 3 internally developed estimates because markets
are not observable.
 Need to be based on the assumptions of market
participants and not the reporting entity.
 Entity-specific intentions should not impact the
measurement of fair value unless those assumptions are
consistent with the market.
 Most likely you will have to develop a hypothetical
market for the asset.

9. WHY: WHY SHOULD YOU TAKE A CLOSER
LOOK AT ASSET IMPAIRMENT ACCOUNTING?
 Economic recession increases potential for impairment
of assets
 BIG adjustments
 Subjective
 Complex calculations
 Audit committee inquiries
 NOT because of potential tax deductions

10. WHERE: WHERE DO WE LOOK FOR ASSET
IMPAIRMENT GUIDANCE?
Long Lived Amortized Indefinite life
Assets Goodwill Intangibles Intangibles
ASC Topic 360-10 ASC Topic 350-20 ASC Topic 350-30 ASC Topic 350-30
SFAS No. 144 SFAS No. 142 SFAS No. 142 SFAS No. 142

11. WHEN: WHEN TO TEST FOR IMPAIRMENT?
Long Lived Amortized Indefinite life
Assets Goodwill Intangibles Intangibles
ASC Topic 360-10 ASC Topic 350-20 ASC Topic 350-30 ASC Topic 350-30
SFAS No. 144 SFAS No. 142 SFAS No. 142 SFAS No. 142
Test if aware of Test annually for Amortize over Test annually for
trigger that could impairment useful life; test if impairment
impair it aware of trigger
that could impair it

12. WHEN: TRIGGERING EVENTS FOR
IMPAIRMENT TESTING
 Significant decrease in the market price of a long-lived asset.
 Significant adverse change in the extent or manner in which a
long-lived asset is being used or in its physical condition.
 Significant adverse change in legal factors or business
climate that could affect the value of the asset.
 An accumulation of costs significantly in excess of the amount
originally expected for the long-lived asset.
 Continuing losses associated with the use of the asset.
 Current expectation that, more likely than not, asset will be
sold/disposed significantly before end of estimated useful life.

13. TROUBLED COMPANY – SHOULD LONG LIVED
ASSETS BE TESTED FOR IMPAIRMENT?
 Sales $22M 2010  Unsigned Asset Purchase
Sales $25M 2009 Agreement (APA)
Sales $32M 2008
 Oper Loss $500k 2010  Signed Loan Modification
Oper Loss $2M 2009 Agreement conditioned
on APA
Oper Loss $200k 2008
Bank accepting $5M in
 Loan covenant violations PPE for $3M debt
which haven’t been
waived. Debt matures w/i
3 mo. with no current
financing offers

14. HOW: HOW DO WE TEST FOR IMPAIRMENT?
Long Lived Amortized Indefinite life
Assets Goodwill Intangibles Intangibles
ASC Topic 360-10 ASC Topic 350-20 ASC Topic 350-30 ASC Topic 350-30
SFAS No. 144 SFAS No. 142 SFAS No. 142 SFAS No. 142
Test if aware of Test annually for Amortize over Test annually for
trigger that could impairment useful life; test if impairment
impair it aware of trigger
that could impair it
2 steps using 2 step test using Same as long Compare fair
undiscounted implied fair value lived assets value to carrying
cash flow and value
then fair value

15. HOW: HOW TO TEST LONG LIVED ASSETS
FOR IMPAIRMENT?
1. Test to determine if there is impairment.
 Measure future undiscounted cash flow including
disposal cost.
 May have to step up in your grouping of assets to
identify cash flow.
 If sum of future cash flow LESS than carrying value,
move on to step 2.
2. Measure impairment.
 Compare fair value to carrying value to measure
impairment loss i.e. must use fair value guidance
 Can you use discounted cash flows…possibly.

16. HOW: HOW DO WE TEST GOODWILL FOR
IMPAIRMENT?
1. Allocate goodwill to reporting units.
2. Perform “Step One” of the impairment test by
comparing the reporting unit’s carrying value to fair
value.
3. Perform “Step Two” of the impairment test if carrying
value is greater than fair value.
 i.e. “Rewrite the check that you originally wrote to
purchase the company.”

17. HOW: HOW DO WE TEST FINITE LIFE
INTANGIBLES?
Amortization tips:
 Amortize over period asset is expected to contribute to
cash flows.
 Don’t automatically use straight-line amortization. The
amortization method should reflect the patter the asset
economic benefits are consumed.
 Residual value assumed zero unless market for asset.
Evaluate for impairment when events and circumstances
warrant.
Impairment test – use long lived assets guidance.

18. HOW: HOW DO WE TEST INDEFINITE LIVE
INTANGIBLES?
 Test annually or more frequent if triggering event.
 Compare fair value to carrying amount. Recognize
impairment loss equal to amount of excess.
 Don’t forget to re-evaluate indefinite live status each
reporting period.

19. TROUBLED COMPANY – SHOULD AMORTIZED
INTANGIBLE BE TESTED FOR IMPAIRMENT,
AND IF SO, HOW?
 Customer list $750k  Intangible will be sold in
 Sales $100k 2010 the APA
Sales $3M 2009  Gain expected on the
Sales $7M 2008 APA sale, however no
asset allocation schedule
 Trying to re-establish exists
relationship with new
buyers

20. ASSETS HELD FOR SALE
 SFAS No. 144
 Do you meet the criteria?
 Stop depreciating or amortizing
 Separately state on your balance sheet
 Report at the lower of carrying amount or fair
value less cost to sell

21. ASSETS HELD FOR SALE CRITERIA:
 Management commits to a plan to sell the asset.
 Asset is available for immediate sale in its present
condition subject only to terms that are usual and customary
for sales of such assets.
 Active program to locate a buyer and other actions
required to sell the asset have been initiated.
 The sale of the asset is probable, and transfer of the asset is
expected to qualify for recognition as a completed sale,
within one year.
 The asset is being actively marketed for sale at a price that
is reasonable in relation to its current fair.
 Actions required to complete the plan indicate that it is
unlikely that significant changes to the plan will be made.

22. TROUBLED COMPANY – ARE ASSETS HELD
FOR SALE?
 No written plan, in  Unsigned Asset Purchase
general, to sale assets Agreement (APA)
 Breakeven on APA and
Loan Modification  Signed Loan Modification
 Outside looking in = sale Agreement conditioned
looks probable on APA
 Mgmt represents = sale is Bank accepting $5M in
uncertain PPE for $3M debt

23. IFRS VS GAAP
 IFRS may lead to need to recognize impairment of long
lived assets earlier due to differences in testing models.
 GAAP Two Step approach using undiscounted cash flows
 IFRS One Step comparing carrying value to recoverable
amount
 Reversal of impairments.
 GAAP Reversals are prohibited
 IFRS If certain criteria are met, the reversal of impairments,
other than goodwill, is permitted

24. DISCUSSION TOPICS
 Asset impairment analysis: Why, Where, When and How
 Assets held for sale
 Troubled Company example
 US GAAP vs IFRS