[Federal Register Volume 60, Number 240 (Thursday, December 14, 1995)]
[Rules and Regulations]
[Pages 64254-64255]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 95-30442]
[[Page 64253]]
_______________________________________________________________________
Part II
Department of Defense
General Services Administration
National Aeronautics and Space Administration
_______________________________________________________________________
48 CFR Part 31
Federal Acquisition Regulation; Impairment of Long-Lived Assets and
Rates of Inflation; Interim Rule and Rule
Federal Register / Vol. 60, No. 240 / Thursday, December 14, 1995 /
Rules and Regulations
[[Page 64254]]
DEPARTMENT OF DEFENSE
GENERAL SERVICES ADMINISTRATION
NATIONAL AERONAUTICS AND SPACE ADMINISTRATION
48 CFR Part 31
[FAC 90-35; FAR Case 95-003]
RIN 9000-AG73
Federal Acquisition Regulation; Impairment of Long-Lived Assets
AGENCIES: Department of Defense (DOD), General Services Administration
(GSA), and National Aeronautics and Space Administration (NASA).
ACTION: Interim rule, with request for comments.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council have agreed to an interim rule to
clarify the allowability of losses recognized when carrying values of
impaired assets are written down for financial reporting purposes. This
regulatory action was not subject to Office of Management and Budget
review under Executive Order 12866, dated September 30, 1993.
DATES: Effective Date: December 14, 1995.
Comment Due Date: To be considered in the formulation of a final
rule, comments should be submitted to the address given below on or
before February 12, 1996.
ADDRESSES: Comments should be submitted to: General Services
Administration, FAR Secretariat, 18th & F Streets NW., Room 4037,
Washington, DC 20405.
FOR FURTHER INFORMATION CONTACT:
Mr. Jeremy F. Olson at (202) 501-3775 in reference to this FAR case.
For general information, contact the FAR Secretariat, Room 4037, GS
Building, Washington, DC 20405 (202) 501-4755. Please cite FAC 90-35,
FAR Case 95-003.
SUPPLEMENTARY INFORMATION:
A. Background
This interim rule is intended to clarify cost allowability rules
concerning the recognition of gains and losses related to long-lived
assets. The rule addresses a cost category which is the subject of a
Financial Accounting Standards Board Statement of Financial Accounting
Standards (SFAS), No. 121, dated March 1995, entitled ``Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets To Be
Disposed Of.''
The SFAS applies to long-lives assets (such as land, buildings, and
equipment), identifiable intangibles, and related goodwill, and
establishes guidance to recognize and measure impairment losses. If
impaired assets are to be held for use, the SFAS requires a write-down
to fair value when events or circumstances (e.g., environmental damage,
idle facilities arising from declining business, etc.) indicate that
carrying values may not be fully recoverable.
Impaired assets that are to be disposed of, however, would be
reported (with certain exceptions) at the lower of cost or fair value
less cost to sell. Once written down, the previous carrying amount of
an impaired asset could not be restored if the impairment was
subsequently removed.
In contrast to the SFAS provisions, Cost Accounting Standard (CAS)
9904.409, ``Depreciation of Tangible Capital Assets'', provides quite
different criteria and guidance to recognize gains and losses for
Government contract purposes. The language at 9904.409-40 (a)(4) and
(b)(4), 9904.409-50(j), and related Promulgation Comment 10, ``Gain or
Loss,'' makes it clear that gains and losses are recognized only upon
asset disposal; no other circumstances trigger such recognition.
FAR 31.205-16 reflects the CAS provisions that an asset be disposed
of in order to recognize a gain or loss. The FAR rule applies to both
CAS and non-CAS covered contracts. Consequently, for Government
contract purposes, an impairment loss is recognized only upon disposal
of the impaired asset. Like other losses, it is measured as the
difference between the net amount realized and the impaired asset's
undepreciated balance. Government contractors, therefore, recover the
carrying values of impaired assets held for use by retaining pre-write-
down depreciation or amortization schedules as though no impairment had
occurred. The rule addresses the treatment of losses for impaired
assets by adding a new paragraph (o) at 31.205-11, and revising the
title and adding a new paragraph (g) at 31.205.16.
B. Regulatory Flexibility Act
The interim rule is not expected to have significant economic
impact on a substantial number of small entities within the meaning of
the Regulatory Flexibility Act, 5 U.S.C. 601 et seq. because most
contracts awarded to small entities are awarded on a competitive fixed-
price basis and the cost principles do not apply. An Initial Regulatory
Flexibility Analysis has, therefore, not been performed. Comments are
invited from small businesses and other interested parties. Comments
from small entities concerning the affected FAR parts will also be
considered in accordance with 5 U.S.C. 610. Such comments must be
submitted separately and cite 5 U.S.C. 601, et seq. (FAC 90-35, Far
case 95-003) in correspondence.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the rule does
not impose any reporting or record keeping requirements which require
the approval of the Office of Management and Budget under 44 U.S.C.
3501, et seq.
D. Determination To Issue an Interim Rule
A determination has been made under authority of the Secretary of
Defense (DOD), the Administrator of General Services (GSA), and the
Administrator of the National Aeronautics and Space Administration
(NASA) that, pursuant to 41 U.S.C. 418b, urgent and compelling reasons
exist to publish an interim rule prior to affording the public an
opportunity to comment. This action is necessary because the Statement
of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of, dated March 1995, requires all publicly owned firms to
recognize impairment losses in their financial statements for fiscal
years beginning after December 15, 1995. It is likely that Government
contractors whose 1996 fiscal year begins after December 15, 1995, will
recognize impairment losses for financial reporting and claim a portion
of such losses either on current contracts or on those awarded after
December 15, 1995. In order to ensure that contractors' impairment
losses are not paid by the Federal Government, it is necessary to issue
this clarification of existing cost principles expeditiously. However,
pursuant to Public Law 98-577 and FAR 1.501, public comments received
in response to this interim rule will be considered in formulating the
final rule.
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: December 8, 1995.
Edward C. Loeb,
Acting Director, Office of Federal Acquisition Policy.
Federal Acquisition Circular
Number 90-35
Federal Acquisition Circular (FAC) 90-35 is issued under the
authority of the Secretary of Defense, the Administrator of General
[[Page 64255]]
Services, and the Administrator for the National Aeronautics and Space
Administration.
Unless otherwise specified, all Federal Acquisition Regulation
(FAR) and other directive material contained in FAC 90-35 is
effective December 14, 1995.
Dated: December 1, 1995.
Eleanor R. Spector,
Director, Defense Procurement.
Dated: December 6, 1995.
Ida M. Ustad,
Associate Administrator, for Acquisition Policy.
Dated: December 7, 1995.
Tom Luedtke,
Deputy Associate Administrator for Procurement, NASA.
Therefore, 48 CFR Part 31 is amended as set forth below:
PART 31--CONTRACT COST PRINCIPLES AND PROCEDURES
1. The authority citation for 48 CFR Part 31 continues to read as
follows:
Authority: 40 U.S.C. 486(c); 10 U.S.C. chapter 137; and 42
U.S.C. 2473(c).
2. Section 31.205-11 is amended at the end of paragraph (e) by
adding the parenthetical ``(but see paragraph (o) of this
subsection).''; and by adding paragraph (o) to read as follows:
31.205-11 Depreciation.
* * * * *
(o) In the event of a write-down from carrying value to fair value
as a result of impairments caused by events or changes in
circumstances, depreciation of the impaired assets shall not exceed the
amounts established on depreciation schedules in use prior to the
write-down (see 31.205-16(g)).
3. Section 31.205-16 is amended by revising the section heading and
adding paragraph (g) to read as follows:
31.205-16 Gains and losses on disposition or impairment of depreciable
property or other capital assets.
* * * * *
(g) With respect to long-lived tangible and identifiable intangible
assets held for use, no loss shall be recognized for a write-down from
carrying value to fair value as a result of impairments caused by
events or changes in circumstances (e.g., environmental damage, idle
facilities arising from a declining business base, etc.). Depreciation
or amortization on pre-write-down carrying value of impaired assets not
yet disposed of shall continue to be recoverable under established
depreciation or amortization schedules to the extent it is not
otherwise unallowable under other provisions of the FAR.
[FR Doc. 95-30442 Filed 12-13-95; 8:45 am]
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