SUBJECT: |
Accounting for the Impairment of Capital Assets
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SOURCE: |
Capital Asset Management | |||||||||||||||
ORIGINAL DATE OF ISSUE: |
August 2010
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DATE OF LAST REVISION: |
August 2010 | |||||||||||||||
CSOP NO: |
22.0 | |||||||||||||||
RATIONALE: |
To provide reporting and accounting guidelines for the impairment of capital assets. | |||||||||||||||
CSOP: |
Impairment of Capital AssetsGASB Statement No. 42 requires Indiana University to evaluate events or changes in circumstances affecting capital assets to determine whether impairment has occurred. Impairment is a significant, unexpected decline in the service utility of a capital asset. The event or change in circumstances that lead to the impairment are not normal and ordinary and would not have been expected to occur during the life of the capital asset..
Indicators of ImpairmentImpairment is indicated when events or changes in circumstances suggest that the service utility of the capital asset may have significantly and unexpectedly declined. Indiana University has defined significant in this context as one million dollars or more. This threshold includes the total cost to renovate, rebuild or replace the impaired asset. Indicators of impairment include:
Evidence of physical damage when the level of damage is such that restoration efforts are needed to restore the service utility. Examples could include:
The University Capital Asset Office has made available an
Impairment of Capital Asset Acknowledgement Form
Impairment TestA capital asset identified with an indicator of impairment, as described above, should be tested for impairment by determining whether both of the following factors are present. If both are not present, an impairment has not occurred.
Measurement of ImpairmentIf both impairment tests have been met as described above and the capital asset will continue to be used by the University, the impairment, or the portion of the historical cost that should be written off, should be measured by the method below, depending upon the impairment indicator that was met. This process will be completed by Financial Management Services. Departments do not need to calculate the amount of the impairment.
The University Capital Asset Office will record the impairment to a capital asset follows:
Insurance RecoveriesThe impairment loss will be reported net of the insurance recovery when the recovery and loss occur in the same fiscal year. Insurance recoveries reported in subsequent fiscal years should be reported as program revenue, non-operating revenue, or extraordinary item.
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DEFINITIONS: |
Impairment of Capital Assets-
a significant, unexpected decline in the service utility of a capital asset.
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CROSS REFERENCES: |
CSOP 34.0 Pollution Remediation Obligation GASB Statement No. 42 Accounting and Financial Reporting for Impairment of Capital Assets |
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RESPONSIBLE ORGANIZATION: |
Organizations that purchase capital assets. |