Problem:
Calculating the true impairment value of an asset involves estimating the fair value of it. As you discussed last week, estimating an accurate fair value of an asset can be particularly challenging. In many cases, companies use different techniques to determine the level of impairment of their assets, such as discounting future cash flows. While the use of these methods can be subjective and require a heightened ethical sensitivity, it provides essential information for company managers and investors.
Write a 3- to 4-page paper explaining in detail the issues of discounting and not discounting future cash flows for impairment and how that impacts the calculation of impairment as well as how this calculation impacts the balance sheet. In your response, also analyze the ethical considerations related to discounting of future cash flows for impairment. Provide your position on whether it is ethical to 'not discount' future cash flows for impairment. Be sure to support your position.