Controlling and Reporting of Real Assets

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Boundless AccountingControlling and Reporting of Real Assets: Property, Plant, Equipment, and Natural ResourcesImpairment o f AssetsImpairment RecognitionAn impairment loss is recognized and accrued through a journal entry to record and reevaluate the asset's value.Learning ObjectivesExplain how to assess an asset for impairmentKey TakeawaysKey PointsBusiness assets should be tested for impairment when a situation occurs that causes the asset to lose value. Certain intangible assets, such asgoodwill, are tested for impairment on an annual basis.Impairment losses can occur for a variety of reasons: physical damage to the asset, a permanent reduction in market value, legal issues againstthe asset, and early asset disposal.An impairment loss is recognized through a journal entry that debits Loss on Impairment, debits the asset's Accumulated Depreciation andcredits the Asset to reflect its new lower value.Key TermsaccrueTo increase, to augment; to come to by way of increase; t o arise or spring as a growth or result; to be added as increase, profit, ordamage, especially as the produce of money lent.depreciation:The measurement of the decline in value of assets. Not to be confused with impairment, which is the measurement of theunplanned, extraordinary decline in value of assets.Impairment RecognitionBusiness assets should be tested for impairment when a situation occurs that causes the asset to lose value. An impairment loss is recognizedand accrued to record the asset's revaluation. Once an asset has been revalued, fluctuations in market value are calculated periodically. Certainintangible assets, such as goodwill, are tested for impairment on an annual basis. Impairment losses can occur for a variety of reasons:when an asset is badly damaged (negative change in physical condition)the asset's market price has been significantly reducedlegal issues have had a negative impact on the assetthe asset is set for disposal before the end of its useful life A loss on impairment is recognized as a debit to Loss on Impairment {the differencebetween the new fair market value and current book value of the asset) and a credit to the asset. The loss will reduce income in the incomestatement and reduce total assets on the balance sheet.

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