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Part $1$

Does recognizing an impairment loss on a$$ long$-$term operating asset have the same effect on the financial statements as recording depreciation expense and amortization$$ expense? Explain.

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Part $1$

A$.$

No$.$ Unlike depreciation and$$ amortization, impairment reflects the systematic loss of future utility of a$$ long$-$term operating asset over its useful life. When a$$ long$-$term operating$$ asset's future economic value is significantly$$ impaired, the decline in value is recognized as a loss in the period that the impairment is discovered. The impairment loss is a cash expense that impacts the statement of cash flows.

B$.$

No$.$ Unlike depreciation and$$ amortization, impairment reflects the fact that the entity expects a material reduction in the future economic benefits expected to be derived from the use of the asset. This will require an estimate of the value to be recovered in the future.$$ Conversely, depreciation and amortization are designed to reflect the systematic loss of future utility of a$$ long$-$term operating asset over its useful life. When a$$ long$-$term operating$$ asset's future economic value is significantly$$ impaired, the decline in value is recognized as a loss in the period that the impairment is discovered. The impairment loss is a cash expense that impacts the statement of cash flows.

C$.$

Yes. Impairment$$ loss, depreciation, and amortization are designed to reflect the systematic loss of future utility of a$$ long$-$term operating asset over its useful life. When a$$ long$-$term operating$$ asset's future economic value is significantly$$ impaired, the decline in value is recognized as a loss in the period that the impairment is discovered. The impairment loss is a$$ non$-$cash expense that has no impact on the statement of cash flows. These financial statement effects are the same as depreciation and amortization.

D$.$

Yes. Unlike depreciation and$$ amortization, impairment reflects the fact that the entity expects a material reduction in the future economic benefits expected to be derived from the use of the asset. This will require an estimate of the value to be recovered in the future.$$ Conversely, depreciation and amortization are designed to reflect the systematic loss of future utility of a$$ long$-$term operating asset over its useful life. When a$$ long$-$term operating$$ asset's future economic value is significantly$$ impaired, the decline in value is recognized as a loss in the period that the impairment is discovered. The loss is reflected on the income statement and the$$ asset's carrying value is reduced on the balance sheet with adequate footnote disclosure. The impairment loss is a$$ non$-$cash expense that has no impact on the statement of cash flows. These financial statement effects are the same as depreciation and amortization