Impairment of Property, Plant, and Equipment

This video shows how to calculate an impairment of Property, Plant, and Equipment according to Generally Accepted Accounting Principles in the United States. There is a 2-step process: step 1 determines whether an impairment is required, and step 2 determines the amount of the impairment (if step 1 indicates one is required). Step 1: Compare the asset's book value (original cost minus accumulated depreciation) to the undiscounted future cash flows the asset is expected to generate. If the expected cash flows are less than the book value, then the asset is impaired (go to Step 2). Step 2: Subtract the asset's fair value from its book value. The resulting figure is the amount of the impairment charge. You then debit impairment expense (this goes on the Income Statement and reduces Net Income) and credit the asset account for the asset that is being impaired (this reduces total assets on the Balance Sheet). Please note: if the expected future cash flows are higher than the asset's book value, then the asset is NOT impaired, even if it's fair value happens to be lower than its book value. You only do Step 2 if Step 1 indicates the asset is impaired.— Edspira is the creation of Michael McLaughlin, an award-winning professor who went from teenage homelessness to a PhD. Edspira’s mission is to make a high-quality business education freely available to the world. — SUBSCRIBE FOR A FREE 53-PAGE GUIDE TO THE FINANCIAL STATEMENTS, PLUS: • A 23-PAGE GUIDE TO MANAGERIAL ACCOUNTING • A 44-PAGE GUIDE TO U.S. TAXATION • A 75-PAGE GUIDE TO FINANCIAL STATEMENT ANALYSIS • MANY MORE FREE PDF GUIDES AND SPREADSHEETS * eepurl.com/dIaa5z — SUPPORT EDSPIRA ON PATREON *www.patreon.com/prof_mclaughlin — GET CERTIFIED IN FINANCIAL STATEMENT ANALYSIS, IFRS 16, AND ASSET-LIABILITY MANAGEMENT * edspira.thinkific.com/ — LISTEN TO THE SCHEME PODCAST * Apple Podcasts: podcasts.apple.com/us/podcast/scheme/id1522352725 * Spotify: open.spotify.com/show/4WaNTqVFxISHlgcSWNT1kc * Website: www.edspira.com/podcast-2/ — GET TAX TIPS ON TIKTOK * www.tiktok.com/@prof_mclaughlin — ACCESS INDEX OF VIDEOS * www.edspira.com/index — CONNECT WITH EDSPIRA * Facebook: www.facebook.com/Edspira * Instagram: www.instagram.com/edspiradotcom * LinkedIn: www.linkedin.com/company/edspira — CONNECT WITH MICHAEL * Twitter: www.twitter.com/Prof_McLaughlin * LinkedIn: www.linkedin.com/in/prof-michael-mclaughlin — ABOUT EDSPIRA AND ITS CREATOR * www.edspira.com/about/ * michaelmclaughlin.com/

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• #property_plant_and_equipment
• #fixed_asset
• #ppe
• #ppe
• #financial_accounting
• #accounting
• #impairment