Ch10. Impairment

Question 1

What are the 4 steps of impairment under IFRS?

Answer 1

S1: Identify CGU.

S2: Identify impairment indicators or annual tests for selected assets.

S3: Determine the recoverable amount (discounted CFs);
Recoverable amount is higher of:
1. FV less cost of disposal
2. Value in use: PV of FCF

S4: Test for impairment and write asset down to recoverable amount;
IF RV < CV, record loss
Loss = RV - CV = NBV

Question 2

Under IFRS, if the impairment applies to a CGU rather than an individual asset, how is the credit allocated between goodwill and the CGU?

Answer 2

First, the goodwill, if there is any in the CGU, is written down to will. Then the remaining balance of the loss is applied to the remaining assets in the CGU on a pro-rata basis.

Question 3

Under ASPE, what are the 4 steps of recognizing impairment loss?

Answer 3

S1: Identify asset group.

S2: Monitor for impairment indicators.
I.e. under ASPE, you don’t need to look for indicators of impairment unless some event or circumstance crops up that leads you to question the asset’s value

S3: Determine the recoverable amount if impairment exists.
i.e. RV = UNDISCOUNTED FCF + SV
impairment exists if CV > RV

S4: Test for impairment and write down to fair value.
i.e. if CV > FV, impairment exists
Impairment loss = CV - FV

Question 4

Identify some internal and external indicators of impairment.

Answer 4

Internal:
a. evidence of obsolescence or physical damage
b. significant changes in the use of the asset/CGU (ex: discontinuance, disposal, or restructuring)
c. declining performance

External:
a. decline in market value
b. technological, market, economic, or legal factors
c. increase in market interest rates, thus decreasing the recoverable amount

Question 5

Under IFRS, there are three categories of intangible assets that need to be tested for impairment. What are they?

Answer 5

a. intangible assets with indefinite useful life.
b. intangible assets not yet available for use
c. Goodwill in CGU

Question 6

Explain how the reversal of impairment is accounted for under both frameworks.

Answer 6

Under IFRS, excluding impairment on goodwill, impairments on assets can be reversed if there are indications that the recoverable amount has increased since the initial impairment loss was recognized.
Asset would be written up to the greater of:
a. recoverable amount
b. CV that would have existed (net of depreciation) had the asset never been written down in the first place.
JE:
DR. Asset, net
CR. Recovery of impairment loss

Reversal of impairment is not allowed under ASPE.