Toyda, Inc. Authorities: 360-10-15-4 and 5 Provides guidance for the impairment or disposal of long-lived assets.

360-10-35-15 There are unique requirements of accounting for the impairment or disposal of long-lived assets to be held and used or to be disposed of. 360-10-35-17 Measurement of an impairment loss An impairment loss shall be recognized only if the carrying amount of a long-lived asset (asset group) is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset (asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset (asset group). That assessment shall be based on the carrying amount of the asset (asset group) at the date it is tested for recoverability, whether in use (see paragraph 360-10-3533) or under development (see paragraph 360-10-35-34). An impairment loss shall be measured as the amount by which the carrying amount of a long-lived asset (asset group) exceeds its fair value. 360-10-35-29 Estimates of future cash flows used to test a long-lived asset for recoverability 360-10-35-36 Fair Value For long-lived assets (asset groups) that have uncertainties both in timing and amount, an expected present value technique will often be the appropriate technique with which to estimate fair value. Judgement: In this case one must first check for recoverability before making any decisions and further calculations regarding the write-down of impairment losses. Recoverability is checked through comparing the undiscounted future cash flows with the carry value of the asset. If you work out the undiscounted expected cash flows (by using 40% in the first 2 years and 15% and 9% through the rest of the life of the two assets respectively) and add the disposal value, you will see that for the Electric cars production facility the recoverable amount is $27,274,202. This is more than the carry value of $25,000,000 and thus there will be no write-offs for impairment losses for the electric cars production facility. When you test for recoverability for the Electric car charger production facility, you find an undiscounted future cash flow value of $867,892. This amount is lower than the carry value of $4,000,000. Therefore the appropriate changes will need to be made to record the impairment of the asset. One will write off impartment losses if carry amount of the assets are greater than the fair value of the assets. In determining the fair value of assets one has to use the method of discounted future cash flows. The carry amount of Electric Car Chargers production facility is $4,000,000 and a fair value determination through the discounted future cash flows showed that the plant is worth $642,989.71. If you compare the two, you see that there is a $3,357,010.29 difference and this will be the impairment loss that will need to be recorded. You also have to take into account the disposal value of the equipment after 10 years which is $10,000. This will bring the disposal loss amount to $632,989.71. As an investor I always want to see growth of the company. If the Electric cars charger production facility is not going to grow and the expected cash flows are going to be low, discontinuation is desirable. This loss that will have to be written down in the Electric car charger facility is a very big amount. It may be needed for the focus of the business to remain on the Electric car facility. If assets are not impaired it would compromise the trustworthiness of the financial statements and this is problematic for investors.