Impairment vs Downward revaluation
Date: June 2, 2009 04:48PM
What is the difference between asset Impairment and downward revaluation?
Under US GAAP is the following valid after a revaluation
The new Book Value of the asset = Historical Cost - Accumulated Depreciation - Loss due to downward revaluation.
Date: June 2, 2009 04:54PM
Impairment is when carrying value (historical cost - accumulated depreciation) > future cash flows.
The write down has a twist....
Impairment write down = carrying value - discount future cash flows
This will decrease earnings, ROE, and ROA in the current period. After that they will increase since you don't have the depreciation expense.
Date: June 2, 2009 04:57PM
Also, under US GAAP, assets CANNOT be revalued upward unless they are being held for sale.
Under IFRS assets CAN be revalued upward up their fair value. The asset revaluation erases the previous write down and any additional revaluation increases equity (other comprehensive income).