Question

At the next management team meeting, Roxy & Harleyexpress some concern that any new equipment acquired toreplace the old equipment may become obsolete within the next threeto six years. Roxy & Harley want to know how the accountingrules for impairments would apply to any new equipment. Researchthe accounting literature (e.g., access the FASB Codification), todetermine the official guidance for information on impairmentsincluding the timing and calculation of the amount. Be sure youdescribe the reasons for recording impairments and how recordingany impairment actually can benefit the financial statements.

(e) You seem toremember that asset impairments could be used to “manageearnings.” Search the Internet and accounting journals forrecent stories in the business press about asset impairments andearnings management. Prepare a memo explaining how earnings mightbe managed through asset impairments.