IAS 36: Impairment of Assets

Question 1

Impairment loss

Answer 1

The amount by which the CARRYING amount of an asset or cash-generating unit exceeds its RECOVERABLE amount

Question 2

Carrying amount

Answer 2

The amount at which an asset is recognised on the SFP after deducting accumulated dep’n and accumulated impairment losses

Question 3

Recoverable amount

Answer 3

The higher of an asset’s FAIR VALUE LESS costs of Disposal (sometimes called net selling price) ans its VALUE IN USE

Question 4

Fair Value

Answer 4

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

Question 5

Value in Use

Answer 5

The present value of the future cashflows expected to be derived from an asset or cash-generating unit.

including cash from its ultimate disposal.

Question 6

Which types of assets have their recoverable amounts assessed annually

Answer 6

• An Intangible asset with an indefinite useful life
  (Trademark)
• An Intangible asset not yet available for use
  (Development)
• Goodwill acquired in a business combination.

Question 7

When is an impairment loss recognised

Answer 7

Whenever Recoverable amount is below Carrying amount.

RECOGNITION:
1) The value of the asset is written down to its Recoverable amount in the SFP
AND
2) The Impairment loss is recognised immediately as an expense in the SCI

3) ** unless it relates to a previously revalued asset where the impairment loss is treated as a revaluation decrease in OCI and Debited to the Reval Surplus within equity - to the extent of the RS for that particular asset)

DISCLOSURE:
The FSs must Disclose the amount of impairment losses recognised in the SPLOCI including impairment losses on revalued assets recognised in OCI.

Adjust depreciation for future periods

Question 8

6 indications of impairment

Answer 8

External:

• A significant fall in the asset’s value
• Adverse effects on the entity caused by external factors : technology, markets, the law
• Increases in interest rates

Internal:

• Obsolescence or Physical damage
• A significant reorganisation within the entity
• The economic performance of the asset is worse than expected

Question 9

What does an impairment review involve

Answer 9

Comparing the asset’s CA to RA:

1. Check asset’s CA (cost/reval less dep’n/am’n to date)
2. Check recoverable amount (FV - CoD or VIU)
3. If CA > RA the asset is impaired and should be written down to its RA on the SFP