Asset Impairments
A fixed asset becomes impaired when its fair market value suddenly drops below the value of its carrying value (acquisition cost less accumulated depreciation), and the loss is not recoverable.
This could happen if an asset's current market value declines because of obsolescence.
Overview of Impairment Processing Steps
- Enter a journal entry for the impairment to reduce the asset's value on your balance sheet and recognize a loss on your income statement.
- Record the impairment for the asset item in the Equipment Info Center. You can add an impairment to the Acquisition Cost grid on the GL Cost tab, reduce the useful life in years on the GL Book tab, or do both. This changes the depreciation calculation going forward for the asset item.
- Process depreciation for the asset item after you change the depreciation calculation.
Journal Entry
You enter the following journal entry in the
:Account | Debit | Credit |
---|---|---|
Impairment Expense | X | |
Accumulated Asset Impairment Loss | X |
Changes to an Impaired Asset Item
The following are the ways you can record an impairment in the Equipment Info Center for an asset item and how it changes the depreciation calculation for an impaired asset item:
Way to Record the Impairment in the Equipment Info Center | Description |
---|---|
Enter an acquisition cost for the asset item. | In the Acquisition Costs grid on the GL Cost tab, enter a row for the impairment with a negative amount.
|
Change the useful life in years for the asset item. |
Change the useful life in years for the asset item in the Useful Life In Years field on the GL Book tab on the Equipment form. You must also clear the Life of Asset check box for at least one cost row (any row) in the Acquisition Cost grid on the GL Cost tab. Going forward, starting in the month that you entered the impairment, the monthly depreciation calculation will change and be based on the new useful life in years. In addition, Vision will make a one-time depreciation adjustment when you run depreciation in the period that you entered the impairment. This adjustment is made so that total depreciation expense and total accumulated depreciation in this period now reflect the new depreciation calculation for all prior periods. Vision applies the new calculation for the depreciation for previous months and makes the depreciation adjustment for this in the period that you made the impairment. It does not post this adjustment in the previous months. Vision will use the straight-line depreciation method to calculate depreciation for the asset item for the remainder of its useful life in years, regardless of what depreciation method is assigned to the asset item on the GL Book tab and the Additional Books tab in the Equipment Info Center. Do not rerun depreciation processing in a prior period for an impaired asset item unless you change the useful life in years back to original value before the impairment. Then, change the useful life in years back to the impairment value. Example: You have an asset item that has a useful life of 4 years. The depreciation basis is $10,000, which is $2,500 of depreciation per year or $208.33 per month. After one year of depreciation, the accumulated depreciation for the asset item is $2,500, and the remaining depreciation to apply is $7,500. At the start of period 13, you change the useful life from 4 years to 3 years. Now the depreciation for each of the 3 years should be $3,333.33 or $277.78 per month. When you run depreciation in period 13 after you change the useful life in years to 3, Vision calculates $1,111.14 of depreciation for period 13. This consists of the following:
The depreciation calculated for the remaining period after period 13 is $277.78. |
Multiple Impairments
You can enter more than one impairment for an asset item in the Acquisition Cost grid on the GL Cost tab in the Equipment Info Center. Vision looks at the Period field in the Acquisition Cost grid for the impairments (the Life of Asset check box is cleared) to calculate the remaining depreciation amounts.
Rerunning Depreciation for Impaired Asset Items
For impaired asset items, if you go back to a prior period and rerun depreciation (or go back to a prior period and unpost and rerun depreciation), you must run depreciation in each period going forward until you reach the current period.
Impairment Example
For an impairment example, see KB article 83456 at the Deltek Customer Care Connect site.