Chapter Six: Impairment Flashcards
What is the definition of ‘recoverable amount’?
The higher of the fair value less costs to sell and the value in use.
What is the definition of ‘fair value less costs to sell’?
The amount at which an asset could be disposed of, less any direct selling costs.
What is the definition of ‘value in use’?
The total future cash flows (discounted to present value) arising from an asset’s continued use, inc. those resulting from ultimate disposal.
What tests must an entity do regardless of any indication of an asset being impaired?
Test an intangible asset with an indefinite usual economic life for impairment (this can be performed at any time in the year, but must be performed at the same time each year), test goodwill acquired in a business combination for impairment annually.
What are some examples of external indicators of impairment?
A significant decline in a non-current asset’s market value during the period, a significant adverse change in the market in which the business operates, changes in the economic environment (such as interest rates or inflation), changes in the legal system.
What are some examples of internal indicators of impairment?
Evidence of physical damage to the asset/it’s obsolescence, a 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 should impairment losses be recognised in FS?
The statement of profit or loss unless they arise on a previously revalued asset.
What are the disclosure requirements for impairments?
An entity shall disclose the amount of impairment losses recognised during the period and the line items of the statement of profit or loss in which those impairment losses are included.
