FAR3 M8 - Impairments

Question 1

Evaluating Impairment

Answer 1

Intangibles (including goodwill) and fixed assets held of use and to be disposed needs to be reviewed at least annually or whenever events or changes in circumstances indicate that the carrying value will no longer be recovered.

Question 2

Impairment Test for Assets (intangible, PP&E) with Finite Life

Answer 2

If #1 fails, move to #2:

1. Carrying value of the asset is compared with the sum of the undiscounted cash flow expected to result from the use of the asset and its eventual disposition (recoverability test).
2. If the carrying value exceeds the total undiscounted future cash flow, then the asset is impaired and the impairment loss = carrying value - FV/DCF (PV)

Question 3

Intangible Assets with Indefinite Lives

Answer 3

One step process. Only use use step of the finite life test. An indefinite life tested for impairment by comparing FV with CV. If FV is less than CV, then impairment loss is equal to the difference.

1. If the carrying value exceeds the total undiscounted future cash flow, then the asset is impaired and the impairment loss = carrying value - FV/DCF (PV). IFRS only uses this method.

Question 4

Reporting Impairment Loss

Answer 4

Reported as a component of income from continuing operations before income taxes, unless is related to discontinued operations. The carrying amount of the asset is reduced by the amount of the impairment loss. Restoration of previously recognized impairment losses is prohibited, unless held for disposal.

Question 5

IFRS Recoverable Amount

Answer 5

The greater of the FV less Selling costs or PV of future cash flows (or asset’s value in use)