Ch 6 Impairment Of Assets Flashcards
What is Impairment?
A REDUCTION
in the RECOVERABLE amount (sales price/use)
of NCA below it’s CARRYING amount
Recognised in the SPL
UNLESS it is a previously revalued asset
Carrying amount V Recoverable Amount
Carrying Amount = Cost-Acc depn/Amortisation
(Super depreciation)
What is the Recoverable Amount for Impairment?
Amount expected to be recovered from the asset.
HIGHER OF
FAIR VALUE (MV) (COST TO SELL)
OR
VALUE IN USE
What is Fair Value?
Amount the asset could be sold for:
=Market Value
Fair Value LESS Cost to Sell
Disposal/Direct Selling Costs
What is Value in Use?
Present value of future cash flows arising from continued use of the asset.
(Discounted to present value)
DOUBLE ENTRY
Impairment Losses
DR SPL - Expense ^ X
CR SOFP - Asset v X
BE CAREFUL OF REVALUATION
If asset has been previously revalued
DR Revaluation Reserve (SOCIE) - Equity v X
CR SOFP - Asset v X
Depreciate the asset @ new CV over its remaining UEL.
Indicators or impairment
What are the external sources of info?
- Significant decline in a NCA MV during the period.
- Significant adverse change in how the business operates.
- Changes in the economic environment - e.g. interest rates/inflation.
- Changes in the legal system/regulations.
Indicators or impairment
What are the 5 x Internal sources of info?
- Evidence of physical damage or obsolescence of the asset.
- Current period operating loss.
- Net cash outflow from operating activities.
- A management commitment to undertake a significant reorganisation.
- A major loss of key employees.
Where are Impairment Losses recognised on revalued assets?
In the REVALUATION RESERVE
Under SOCIE
Name 3 reasons of when to carry out impairment reviews?
1) Intangibles with Indefinite Useful Life.
2) Goodwill on acquisition of a business.
3) Indications of impairment (Internal & external)
