Accounting Foundations: Asset Impairment

Introduction

• How impaired assets impact the balance sheet

1. Accounting for the Acquisition of Tangible and Intangible Assets

• Recording the purchase of a sports franchise
• A basic purchase
• A basket purchase
• Acquiring an entire business

2. Depreciation, Amortization, and Depletion

• The old Blockbuster Video case
• Straight-line depreciation and book value
• Accelerated depreciation and income taxes
• Difference between depreciation and amortization

3. Impairment of Tangible Assets

• Rio Tinto buys a coal mine in Mozambique
• The strange tangible asset impairment test in US GAAP
• Practice with tangible asset impairment computations
• A big bath: Strategic reporting of impairment losses

4. Impairment of Intangible Assets

• Why did Microsoft buy Nokia?
• Intangible asset impairment test for finite-lived intangibles
• Intuitive impairment test for infinite-lived intangibles

5. Impairment of Goodwill

• The ill-fated AOL-Time Warner merger
• The new goodwill impairment rule
• The old and costly goodwill impairment rule
• Case study in goodwill impairment: HP and Autonomy

6. Writing Assets Up?

• Does Coca-Cola have more cash or more fixed assets?
• The upward revaluation option under International Financial Reporting Standards (IFRS)

Conclusion

• What will we report in the future, cost or fair value?