Ch.10 Impairment of Assets

Question 1

Impairment definition

Answer 1

impaired = entity is unable to recover the carrying amount of the asset

Question 2

IAS #

Answer 2

IAS 36

Question 3

CGU

Answer 3

cash-generating units
smallest group of assets that generate independent cash flows from other assets or groups of assets eg aircraft (together many assets generate cash)

Question 4

When to test for impairment

Answer 4

IFRS:
• indicators of impairment
eg physical damage, significant change in use (disposal, restucture), declining asset / CGU performance, decline in market value, change in which the entity operates, increases in market interest rate, decreases CGU amount
• annual tests for select assets :
intangible assets with indefinite useful life
ntangible assets not yet available for use (and, therefore, not yet being depreciated)
CGUs to which goodwill has been allocated

Question 5

Recoverable amount

Answer 5

higher of
(a) the fair value - cost of disposal
b) value in use= calc PV
discounting the estimated net future cash
flows from the CGU =
PMT= cash flows generated
FV= future disposal
N= years
I/Y= Rate = pre-tax rate

Question 6

Test for impairment

Answer 6

If the recoverable amount DR impairment loss
Assets -> credited
CGU -> goodwill credited, remaining balance credited amongst assets in CGU on pro-rata basis

Question 7

Reversal impairment

Answer 7

Goodwill cannot be reversed
the asset is written up to the lesser of its recoverable amount and the carrying value that would have existed (net of depreciation) had the asset never been written down (original NBV)

Question 8

Differences ASPE

Answer 8

• no CGU in aspe. just asset group = concerned w inflows and outflows of cash
  -don’t look for indicators of impairment-> unless an event indicates that the carrying amount may not be recoverable
  -Carrying value>recoverable amount(UNdiscounted cash flow)=impaired
  undiscounted cash flow=(cash flow*#yr +end yr amount)
  impairment loss= Fair value-carrying amount
  -impairment losses are not reversed when asset makes recovery in value