Impairments

Per FASB guidance, long-lived assets and certain identifiable intangibles held and used by an entity are to be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In performing the review for recoverability, the entity should estimate the future cash flows expected to result from the use of the asset and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, an impairment loss is recognized. Otherwise, an impairment loss is not recognized. Measurement of an impairment loss for long-lived assets and identifiable intangibles that an entity expects to hold and use should be based on the fair value of the asset.

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Important Considerations

The following should be noted and understood before recording any Impairments in LeaseAccelerator:

Impairments (whether partial or full) are recorded in the Record Asset Event workspace.
Impairment is always available as an option in the Record Asset Event workspace. It does not need to be included in customer’s EOT Options when entering a lease.
Within LeaseAccelerator, impairments are always treated as a full-month event. If the impairment is recorded on the last day of the fiscal month, it will be applied based on the net book value at the end of that fiscal month, with the impact on depreciation being reflected in the subsequent fiscal month. If the impairment is recorded on any other day of the fiscal month, it will be applied based on the net book value at the end of the preceding fiscal month, with the impact on depreciation being reflected in the fiscal month in which the impairment is effective.
Full Impairments should be recorded based on the maximum Net Book Value (NBV) of the asset across all ledgers to which it is booked. If you enter an impairment amount which is greater than the maximum NBV across all ledgers, the system will prompt you with a pop-up that tells you the maximum NBV across all ledgers.
LeaseAccelerator does not allow impairments to be specified by ledger. Partial impairments are expected to represent a loss of value which is consistent regardless of accounting standard and will be applied to all ledgers at the same amount.
LeaseAccelerator allows for multiple assets to be impaired with a single impairment event and amount and will subsequently allocate the impairment expense proportionally. The proportional allocation follows the same rules and order of precedence as the initial allocation of rent: standalone observable price, asset-level rent, asset-level original equipment cost, or equally distributed over the assets on the schedule, if none of the other allocation bases is available.
There may be times when a single asset needs to be impaired multiple times, such as a building suffering damage from a hurricane one year and another hurricane two years later. LeaseAccelerator includes the ability to record multiple impairments on a single asset. When impairing an asset multiple times, ensure that the Impairment Date is unique for each event.

Impairing an Asset

LeaseAccelerator’s Impairment functionality includes the ability to impair a single asset on a schedule, multiple assets on a schedule, or all assets on the schedule. Users also have the ability to fully impair asset(s) for the maximum Net Book Value or partially impair them for a fraction of their Net Book Value.

The steps to do any impair remain the same.

Step	Action: Record Asset Event
1	Search for the deal using the Top Search Bar and Deal #.
2	Hover over Record Event in the Left NavBar.
3	From the first menu, select Record asset impairment.
4	Once in the Record Asset Event workspace, select the asset(s) that you want to impair.
5	Verify that Impairment is pre-selected in the Asset Event drop-down.
6	Select the appropriate fiscal period from the Ledger Date drop-down.
7	Change Impairment Date to appropriate date. This should be the last day of the fiscal month before the impairment takes effect or the first day of the fiscal month in which you want impairment to take effect.
8	Enter any relevant comments related to the impairment.
9	Enter the impairment amount. The impairment amount must be less than or equal to the net book value of the selected asset. If it is greater, you will get a pop-up warning indicating the maximum value that may be used.
10	Click Save.

Change Recorded Impairment Amount

In order to update or change an impairment amount that has been recorded, a user would edit the Asset Event that was recorded. Users are able to record additional impairments for the same assets for different amounts when the impairment amount needs to increase. If a user needs to reduce the impairment amount of a recorded impairment, you MUST edit the Asset Event.

Note: If you have recorded subsequent impairment(s) to the one that needs to be increased, you should rollback the later impairment(s) before editing the impairment that you wish to increase, then re-record any subsequent impairments. Otherwise, you risk over-impairing the asset, as validation is based on the impairment event you are recording/editing, not on the life-of-lease chain of impairments.

Step	Action: Edit EOT Event and save
1	Search for deal using the Top Search Bar and Deal #.
2	In the Deal Summary workspace, go to the Summary tile.
3	Find the EOT Impairment event and click the kebab (three dots) to the right and select Edit.

Step	Action: Edit EOT Event and save
4	Once in the Record Asset Event workspace, edit the impairment amount to include the increase. The impairment amount must be less than or equal to the net book value of the selected asset(s) based on the impairment effective date. If it is greater, you will get a pop-up warning indicating the maximum value that may be used.
5	Click Save.
6	From Left NavBar go back to Deal Summary and verify that the impairment amount changed by looking at the Summary tile and scrolling down to the Mid-Term/EOT Events section and the Impairment event.

Rollback Recorded Impairment

If an error has been made when recording an Impairment, LeaseAccelerator allows users to rollback the impairment event, which will reverse out all of the accounting.

Step	Action: Edit EOT Event and save
1	Search for deal using the Top Search Bar and Deal #.
2	In the Deal Summary workspace, go to the Summary tile.
3	Find the EOT Impairment event and click the kebab (three dots) to the right and select Rollback.
4	Deal Summary will refresh and the impairment event will disappear. The event in Deal History will be crossed out, indicating it was rolled back.

Recording an Impairment Loss Reversal

According to FASB, once an asset is impaired, it will always be impaired, and cannot be reversed. However, according to IASB, you may reverse an impairment after you have reviewed and tested the asset in much the same way as when you initially impaired it.

For example, a Lessee leases a warehouse that had a devastating fire. After testing the asset, the Lessee decided to impair the asset since the warehouse was not usable anymore. After several months, the warehouse was repaired and restored to a functioning space. According to FASB, there is nothing to do, you cannot reverse that impairment. But under IASB, you have the ability to reverse the impairment.

LeaseAccelerator offers the ability to reverse an asset impairment loss to any asset booked in an IAS 17 or IFRS 16 ledger. LeaseAccelerator calculates the depreciation on the net book value (NBV) of the asset prior to the impairment so that the asset will not go below its value.

Step	Action: Record Asset Event
1	Search for the deal using the Top Search Bar and Deal #.
2	Hover over Record Event in the Left NavBar.
3	From the first menu, select Reverse asset impairment loss.
4	Once in the Record Asset Event workspace, select the asset that you want to reverse the impairment. Assets eligible for this event will indicate if they are impaired in the asset tree.
5	Verify that Impairment Loss Reversal is pre-selected in the Asset Event drop-down.
6	Change Impairment Loss Reversal Date to appropriate date
7	Select the appropriate fiscal period from the Ledger Date drop-down.
8	Enter any relevant comments related to the impairment loss reversal.
9	Enter the impairment loss reversal amount. IAS 36 paragraph 117 defines a maximum impairment reversal amount. Note: LeaseAccelerator does not automatically calculate an impairment reversal limit. This should be determined by the user to arrive at the maximum allowed reversal amount.
10	Click Save.

Important Considerations Regarding Impairment Loss Reversal

There are important considerations and guardrails within LeaseAccelerator that should be mentioned.

Only previously impaired assets will have this new option available.
Users will see a new indicator on impaired assets in the asset tree within the Record Asset Event workspace letting them know that an asset is impaired. This indicator will remain unless the impairment is rolled back.
Only one asset can be selected at a time, since creating impairment loss reversals across assets with different values could create complex accounting output that would be difficult to reconcile.
An additional side-effect of limiting the selection of assets on impairment-type events relates to editing historical impairments recorded with multiple assets. Editing of these events will no longer be allowed and the event will need to be rolled back and the impairments rerecorded.
The deal must be booked to an IAS17 or IFRS16 ledger.
Impairment Loss Reversals cannot be on the same date as a prior impairment for the same asset.
The Impairment Loss Reversal amount must be greater than zero.
Impairment and Impairment Loss Reversal Events will display a message noting that these types of events apply to the entire fiscal period when the effective date is anything other than the first day of the fiscal period.
A guardrail exists to block the recordation of an impairment-type event with the same date or prior to any other impairment-type event for the selected asset.
If the impairment or another impairment loss reversal is rolled back or edited for the same asset, then the system will automatically rollback any subsequent impairment-type event(s) for that asset.
New Deal Summary and Deal History events will appear. In Deal Summary, impairment-type events show the asset number associated with the event. For historical impairments multiple numbers may appear.