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Eagle Impairment Case

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Eagle Impairment Case
The following report outlines an analysis of Eagle Company’s assets in Serbia and Italy. With the information provided, we have created a detailed report to assess which assets should be impaired along with its impairment value under the IFRS and US GAAP standards.

Eagle in Italy

Under IFRS:
Eagle owns a commercial building in Italy. The carrying amount is $1,100 with $900 being the value in use. According to IAS 36 P18, “An asset is impaired when its carrying amount exceeds its recoverable amount.” In this case, the carrying amount ($1,100) exceeds the recoverable amount (Higher of Value in use) of $900. Eagle should report an impairment loss of the difference of the carrying amount and the value in use: $1,100 - $900 = $200,000.
Eagle should report an impairment loss of $200,000 for their cash-generating unit (CGU) in Italy.

Under US GAAP:
According to US GAAP, if the undiscounted future cash flows ($1,150) exceeds the carrying amount ($1,100), then no impairment loss is recorded. Since that is the case, under US GAAP, Eagle should not report an impairment loss on their CGU.

Eagle in Serbia

Under IFRS:
Eagle acquired a smaller competing company in 2011 in Serbia; goodwill was allocated to the CGU. The guidelines for determining whether an impairment loss is recorded are the same as the scenario for Eagle in Italy, “An asset is impaired when its carrying amount exceeds its recoverable amount.” The fair value of the PP&E was $1 million. Since the current book value (carrying amount) of the PP&E is now $1.1M, Eagle must reevaluate the net value of the PP&E to figure out the new carrying value.
(in thousands)
Cash: 50
PP&E: 1,000
Land: 150
Goodwill: 300
(Liabilities): (200)
New Book Value of Assets: 1.3M (carrying value)

IAS 36 P 74 states “The recoverable amount of a cash-generating unit is the higher of the…...

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