D6-IAS 36 IMPAIRMENT OF ASSETS

Question 1

1. key definitions of impairment of assets

Answer 1

1. the impairment the property need to be recorded at the lower of carrying amount and its recoverable amount.
2. impairment loss: the amount by which the carrying amount of an asset or cash-generating unit ecceeds its recoverable amount.

Question 2

2.key definitions of impairment of assets

Answer 2

1. carrying amount: the amount at which an asset is recognised in the balance sheet after deducting accumulated depreciation and accumulated impairment losses.
2. recoverable amount: the higher of an asset`s fair value less costs of disposal (sometimes called net selling price) and its value in use;
3. fair value: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date;
4. value in use: the present value of the future cash flows expected to be derived from an asset or cash-genarating unit.

Question 3

3. indications of impairment

Answer 3

1. external of impairment:
   - market value declines;
   - negative changes in technology, markets, economy, or laws;
   - increase in market interest rates;
   - net assets of the company higher than market capitalisation.
2. internal sources:
   - obsolescence or physical damage;
   - asset is idle, part of a restruturing or held for disposal;
   - worse economic performance than expected;
   - for investments in subsidiaries, joint ventures or associates, the carrying amount is higher than the carrying amount of the investee`s assets, or a dividend exceeds the total comprehensive income of the investee.

Question 4

4. recognition of an impairment loss

Answer 4

1. an impairment loss is recognised whenever recoverable amount is below carrying amount.
2. the difference between recoverable amount and the carrying amount will reduce the non current asset value. the remaining difference will then be debited to profit or loss as an impairment loss expense.
3. if the asset has been revalued before its impairment,
   - we should firstly write off the original revaluation reserve that we have recognised for the assets;
   - then charge the remaining balance into the impairment loss in the statement of profit or loss;
4. at the same time, the asset would be reduced in value equal to the full impairment expense and the revaluation reserve written down.