Need to reply to at least 2 classmates. Be constructive and professional in your responses. When replying to another classmate or in discussion areas, the minimum word count is 100 words and the response must be substantive in nature. Responses not meeting these requirements will not earn credit for participation purposes.
Discussion question for the week:
- What approach should be used to measure a public sector capital asset impairment loss that results from physical damage to the capital asset?
Response 1: Multiple approaches can be used to measure public sector capital asset impairment loss. Some different approaches for measure public sector capital asset impairment loss include the deflated depreciated cost approach, the service units approach, and the restoration cost approach. The service units approach appears to be a relatively straightforward approach to determining the correct historical cost and impairment. “The amount of impairment is determined by evaluating the service provided by the capital asset − either maximum estimated service units or total estimated service units throughout the life of the capital asset – before and after the event or change in circumstance” (Minnesota State. N.d.). This is a straightforward approach because it judges the output post-event to the historical output. If the estimations post-event are lower than pre-event, the asset may be considered an impairment loss. The deflated depreciated cost approach is similar to the service unit approach but adds that a capital asset depreciates over time. This will be noted in the historical data for the asset and would be different than if the capital asset was brand new. Once there has been a determination for the proper dollar amount of the asset, that amount is deflated to reflect its depreciated value over time (Minnesota State. Nd.). This method seems to make more sense in the public sector. The public sector is generally running at a slower speed and with previous-generation technologies than the private sector. Because of this, it cannot be assumed that assets can be appraised as new post-incident when there has been a noticeable depreciation over time.
Response 2: In the public sector, it is vital that government officials evaluate changes in circumstances that may affect their capital assets. These impairment losses may include physical damages or changes in technology. Therefore, it is important that governments recognize and determined whether or not a capital assets are impaired. According to the Governmental Accounting Standards Board (2003), “Impairment of capital assets with physical damage generally should be measured using a restoration cost approach, an approach that uses the estimated cost to restore the capital asset to identify the portion of the historical cost of the capital asset that should be written off.” Essentially, in order to ensure that all things are in accordance, government officials should report assets that are no longer being utilized. This would help aide in the restoration cost approach. It is also important to note that changes in how assets are used and how long they are used can be considered an indicator of impairment. These impairments can also be recognized through the use of an impairment assessment.
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