A leased asset becomes impaired if a change in circumstances indicates that you can no longer reasonably expect to gain substantial value from using it. For instance, you may close a store location, but not be able to terminate the lease. An impairment may be full or partial. An impairment results in a loss which is added to the accumulated depreciation. If the impairment is partial, additional impairments may be recognized later in the lease life. Reversing an impairment is not supported.
For an ASC 842 operating lease, after an impairment, any remaining asset is depreciated on a straight-line basis “unless another systematic basis is more representative of the pattern in which the lessee expects to consume the remaining economic benefits” [842-20-25-7]. EZLease honors the Depreciation Method chosen for the lease to depreciate the remaining asset.
Impairing an asset
In the Impairments table, enter the effective date for an impairment, which should be in the current fiscal period. You have two choices for how to enter the impairment:
- Enter a positive number or zero, to specify the post-impairment net asset value at the impairment date. (EZLease will notify you if you enter a value greater than the net asset value.)
- Enter a negative number, to specify the amount of impairment reduction. (EZLease will notify you if you enter a value that would reduce the net asset value below zero.)
You may optionally enter a description of up to 100 characters.
When the impairment is recognized, EZLease debits Impairment Loss and credits Allowance for Impairment. Amortization of the asset stops (because no asset remains), but Accumulated Amortization is not altered; it remains unchanging on the books. When the lease expires, Accumulated Amortization and Allowance for Impairment are both debited, removing them from the books; ROU Asset is credited, removing it from the books. The entries in the month the lease expires are balance sheet only, not income statement, so there is no cost involved.