[Federal Register Volume 61, Number 246 (Friday, December 20, 1996)]
[Rules and Regulations]
[Pages 67423-67424]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 96-32010]
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DEPARTMENT OF DEFENSE
48 CFR Part 31
[FAC 90-43; FAR Case 95-003; Item X]
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 adopted as a final rule with changes.
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SUMMARY: The Civilian Agency Acquisition Council and the Defense
Acquisition Regulations Council have agreed to a final rule to amend
the Federal Acquisition Regulation (FAR) to clarify the cost
allowability rules concerning the recognition of losses 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, and is not a major rule under 5 U.S.C. 804.
EFFECTIVE DATE: February 18, 1997.
FOR FURTHER INFORMATION CONTACT: Mr. Jeremy Olson at (202) 501-3221 in
reference to this FAR case. For general information, contact the FAR
Secretariat, Room 4035, GS Building, Washington, DC 20405 (202) 501-
4755. Please cite FAC 90-43, FAR case 95-003.
SUPPLEMENTARY INFORMATION:
A. Background
This final rule clarifies that impairment losses recognized for
financial accounting purposes under the Financial Accounting Standards
Board Statement of Financial Accounting Standards (SFAS), No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of, dated March 1995, are not allowable for
Government contract costing.
The SFAS applies to long-lived assets (such as land, buildings, and
equipment), certain identifiable intangibles, and related goodwill. 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. Once written down, the
previous carrying amount of an impaired asset could not be restored if
the impairment were 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 CAS 9904.409-40 (a)(4)
and (b)(4), CAS 9904.409-50(j), and related Promulgation Comment 10,
Gain or Loss, makes it clear that gains and loses are recognized only
upon asset disposal; no other circumstances trigger such recognition.
The language at CAS 9904.409-50(i) makes it clear that changes in
depreciation may result from other permissible causes, e.g., changes in
estimated service life, consumption of services, and residual value.
This final rule amends FAR 31.205-11, Depreciation, and 31.205-16,
Gains and Losses on Disposition or
[[Page 67424]]
Impairment of Depreciable Property or Other Capital Assets, to clarify
that these subsections reflect the CAS provisions that an asset be
disposed of in order to recognize a gain or loss. Consequently, for
Government contract purposes, (1) an impairment loss is recognized only
upon disposal of the impaired asset and is measured, like other losses,
as the difference between the net amount realized and the impaired
asset's undepreciated balance; (2) Government contractors 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; and (3) changes in depreciation are allowable from other
permissible causes.
An interim rule was published in the Federal Register on December
14, 1995 (60 FR 64254). Four sources submitted public comments. All
comments were considered in developing this final rule.
B. Regulatory Flexibility Act
The Department of Defense, the General Services Administration, and
the National Aeronautics and Space Administration certify that this
final rule will not have a 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 use simplified acquisition procedures or are awarded
on a competitive fixed-price basis and do not require application of
the FAR cost principles.
C. Paperwork Reduction Act
The Paperwork Reduction Act does not apply because the changes to
the FAR do not impose recordkeeping or information collection
requirements, or collections of information from offerors, contractors,
or members of the public which require the approval of the Office of
Management and Budget under 44 U.S.C. 3501, et seq.
List of Subjects in 48 CFR Part 31
Government procurement.
Dated: September 11, 1996.
Edward C. Loeb,
Director, Federal Acquisition Policy Division.
Accordingly, the interim rule amending 48 CFR Part 31 and published
at 60 FR 64254, December 14, 1995, is adopted as a final rule with the
following changes:
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(o) is revised 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, allowable depreciation of the impaired assets shall be
limited to the amounts that would have been allowed had the assets not
been written down (see 31.205-16(g)). However, this does not preclude a
change in depreciation resulting from other causes such as permissible
changes in estimates of service life, consumption of services, or
residual value.
3. Section 31.205-16(g) is revised 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 allowed 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.). If
depreciable property or other capital assets have been written down
from carrying value to fair value due to impairments, gains or losses
upon disposition shall be the amounts that would have been allowed had
the assets not been written down.
[FR Doc. 96-32010 Filed 12-19-96; 8:45 am]
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