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Q19 Q

Intermediate Accounting (Kieso)
Found in: Page 583

Short Answer

Explain how gains or losses on impaired assets should be reported in income.


Impaired asset losses are reported as part of the income from continuing operations.

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Step by Step Solution

Step-by-Step SolutionStep 1: Meaning of Impairment of Asset

The term "impairment" refers to a reduction in the market value of fixed or intangible assets, indicative of a reduction in quantity, quality, or market value of an asset. The idea is that an asset should never be reported in a business's financial statements above the maximum amount that could be recouped through its sale.

Step 2: Explaining reporting of gains or losses on impaired assets.

Impairment losses are normally included in "Other costs and losses" column of income from continuing operations. Impairment losses (and the recovery of losses for assets that are to be disposed of) are similar to other operational expenditures. As a result, profits (recoveries of losses) on assets to be disposed of should be recorded in "Other revenues and gains" section as part of the income from continuing activities.

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