IAS-36 Impairment

Question 1

When to impair?

Define above

Answer 1

• An asset is impaired when its CV exceeds it’s Recoverable amount.
• Recoverable amount is lower of:
  - FV less cost to sell
  - Value in use (PV of future cash flows)

Question 2

Indications of impairment (3 external, 3 internal)

Answer 2

Internal:

• Physical damage
• Obsolete or idle
• Poor performance of asset

External:

• Fall in asset’s market value
• Change in the market the business/asset operates.
• Increase in interest rates.

Question 3

Manipulation of impairment accounting

Answer 3

• If you overstate the recoverable amount, you will have less impairment losses. Recoverable amount is lower of FV-cost to sell and value in use.

Manipulating Value in Use:

• # of years cash flow is expected from the asset
• The discount rate to be used
• Value of cash inflows and outflows from asset

Manipulating FV-costs to sell:

• Costs to sell are an estimate
• FV is judgmental without a binding sale agreement.
• FV calculated on internal inputs (level 3), can be easily manipulated.

Question 4

Impairment of financial assets (3) types

p/l, oci, amortised cost

Answer 4

• @ FV through P&L are not subject to an impairment review as any changes to CV is taken to P&L.
• @ FV through OCI are not subject to impairment review. Any changes to CV is taken to P&L.
• @ amortised cost require assessment at each reporting date of any evidence if impairment. If so, impairment review and taken to P&L.