Chapter 4 - Impairment of Individual Assets

Question 1

When would an asset be impaired?

Answer 1

if its recoverable amount is below its carrying amount

Question 2

An assets recoverable amount what?

Answer 2

higher of its:
- fair value - costs to sell
- value in use: the present value of cash generated by the asset

Question 3

What is the carrying amount?

Answer 3

cost - accumulated depn/amortisation

Question 4

What is the fair value less costs to sell?

Answer 4

amount at which an asset could be disposed of, less any direct selling costs

Question 5

what is the value in use?

Answer 5

the total future cash flows (discounted to present value) arising from an asset’s continued use, including those resulting from its ultimate disposal

Question 6

what are some internal indications of impairement?

Answer 6

• evidence of obsolescence/damage
• changes in asset use
• asset performance below expectations

Question 7

what are some external indications of impairement?

Answer 7

• decline in market value
• changes in environment: economic, market, technological or legal
• increased interest rates, reducing value in use

Question 8

What is the impairment calculation?

Answer 8

Carrying amount of asset less recoverable amount (higher of fair value less costs to sell and value in use)

Question 9

What is the double entry for impairment?

Answer 9

Dr Revaluation reserve
Cr PPE

Question 10

What is an impairment reversal?

Answer 10

where the events anticipated to cause impairment of an asset turn out better than predicted.

Question 11

what happens with an impairment reversal?

Answer 11

the recoverable amount is recalculated and the previous impairment reversed.

Question 12

where is the reversal impairment recognised?

Answer 12

reverse out the impairment and recognise as income in the SPL

Question 13

If the impairment was charged against revaluation surplus what is the impairment reversal?

Answer 13

reversal is recognised as other comprehensive income and credited to the revaluation surplus

Question 14

what is an impairment reversal limited by?

Answer 14

limited to assets carrying amount as if no impairment has been recognised

Question 15

What are the external indicators for an impairment reversal?

Answer 15

• increases in the assets market value
• favourable changes in the technological, market, economic or legal environment
• decreases in interest rates

Question 16

What are the internal indicators for an impairment reversal?

Answer 16

• favourable changes in the use of the asset
• improvements in the asset’s economic performance

Question 17

what is the double entry for the impairment reversal?

Answer 17

Dr Carrying amount of asset
Cr SPL

Question 18

What is a cash generating unit?

Answer 18

the smallest identifiable group of assets for which independent cashflows are indentifiable

Question 19

what is the impairment calculation for CGU?

Answer 19

their combined value is compared to the total recoverable amount.

Question 20

When does impairment exist?

Answer 20

total carrying amount > total recoverable amount

Question 21

Assets should be impaired in what order?

Answer 21

1. purchased goodwill
2. remaining asset pro-rata based on their carrying amount