Impairment of LHI Assets

Question

At the end of 2017, I set up impairment contra-assets in order to write down the value of the Leasehold Improvements booked prior to the impairment analysis. I set them up so that they would fully depreciate at the end of the lease, as the LHI assets will do. In theory, this makes sense to me--assuming we do not renew the lease, all assets will be fully depreciated at the end. The problem I'm having now is that the impairment asset has a more accelerated depreciation rate because the In Service Date is months/years after the other LHI assets. For most of the impaired locations, I now have a negative Net Book Value, but still have 6 years left. 
 We are currently working through the annual impairment analysis, and the negative NBV is skewing the results. 
 Is there a way to set the asset up so that I control how much it depreciates each month, and then know that I need to write off the remaining balance at the end of the lease? 
 Or is there a better way to handle the scenario?

Delray · Answer

Hello Anne, 
 When it comes to impairments, while technically not supported, what I would tell you to do is to change the Acquisition Value answering Yes-Current Thru Date to the questions and then change the Depreciation method to RV so that the now over depreciated asset will fully depreciate at the end of life instead of before the end of life. As for the negative value assets, also technically not supported, they do work, but without complete asset details of both assets to even begin to guess at the difference.

Delray · Answer

Hello Anne, 
 No, I didn't forget you. I did get a bit snowed under yesterday and managed to get hung up because my hand calculation was not getting the right numbers. I was looking at your assets for a good 10 minutes before I realized you are using an AAP cycle and I do not have your calendar information, so of course my hand calcu could not work. The good news is, I was only $168.43 off, so I knew I was at least in the ballpark and not blindly wondering around the parking lot. 
 I do see what the issue is: A "lumpy" impairment asset on a group of assets with a negative value asset which is 85% of the sum of the original assets which was PIS in the year following the original group with a shorter life will take depreciation at a higher rate thus producing this net negative NBV that you do not want. (Too confusing?) Unfortunately, for the way the assets are setup, that is the correct calculation which is one of the reasons why the process we usually recommend is the change in the Acquisition value. Since I do not have your calendar information I cannot give you precise numbers but the answer could be something like this: 
 
 Place the impairment asset into server in the Prior year - the prior year assets being PIS at varied dates does complicate things somewhat, but I would recommend the 2/6/2016 date 
 Use the Depreciation Method RV 
 Set the life to 9 years 2 months 
 Enter a beginning date as of the date you want this change to take effect - The beginning date being a manual override to depreciation - the asset will not appear on any prior period reports if you choose to run them 
 Enter a negative Beginning Accum amount at 85% of the sum if the Total Accum of the other asset as of that date. 
 
 That would at least have the effect of lowering your monthly amounts going forward, but you just might not want to look at the Prior Accum totals which is another reason why we recommend making the changes to the assets value.

Delray · Answer

Yes, and one-to-one negative value asset with the PIS date and Life matching and the Beginning date as the date of the Impairment would at least make it easier to find inconsistences. Lumpy assets always present a challenge

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