Conclusion. Dr Revaluation surplus (B/S account) The entity should reduce the carrying amount of the asset to its recoverable amount. debit to loss on impairment of $12,000. On the other hand, book value, or carrying amount, is the amount you paid for the asset, minus depreciation. Increases in value in excess of prior impairment loss is debited directly to the asset and credited to a revaluation reserve account in the equity section of the balance sheet. This would allow management to easily track accumulated impairment losses for potential reversal as discussed in example 8. In each case the journal entries show the debit and credit account together with a brief narrative. Intangible assets are created through time and effort, and are identifiable as separate assets. Impairment exists when the carrying amount exceeds the asset’s fair value. 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The difference between the reduction from the previous carrying amount to the recoverable amount is known as an impairment loss. If the asset‘s carrying amount is considered not recoverable, … assets to be held and used and assets held for sale. C. Debit Impairment Loss and credit Accumulated Depreciation. However, after the first year of operations, the market reception of the new technology proved not to be that encouraging, and the company was forced to revise its estimate of annual cash flows down to $30 million per annum. Journal entry for recording the impairment is the debit to the loss account or to expense account with the corresponding credit to an underlying asset. Companies need to perform impairment tests annually or whenever a triggering event causes the fair market value of a goodwill asset to drop below the carrying value. Previous question Next question Transcribed Image Text from this Question. The concept of … To that end, the legislation gives companies tax deductions for sums written off intangible assets in their accounts. debit to accumulated depreciation of $40,000. You will probably deal with the impairment of intangible assets (non-physical assets) as well as the impairment of fixed assets, which are long-term assets. The cash flows a CPA uses to test for impairment would assume the company uses the asset group for four years and disposes of it. There is no need to compare the sum of undiscounted cash flows to the carrying amount. When the carrying value of the impaired assets is adjusted, then the loss is to be recognized on the income statement of the company. Other accounting standards dealing with intangible assets and goodwill include IFRS3, IAS38, Sections 13 and 14 of FRS 105, FRS7 and FRS10. Amortization & depreciation in the accounting cycle: A bond’s discount amount must be amortized over the term of the bond. 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