IAS 36- Impairment of Assets

Question 1

Objective

Answer 1

prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount.

Question 2

Scope

Answer 2

**Includes: **
All assets except exclusions.
financial assets involving subsidiaries, associates, and joint ventures, but not those within the scope of IFRS 9.

Excludes:
* Inventories,
* contract assets,
* deferred tax assets,
* assets from employee benefits,
* financial assets under IFRS 9,
* investment property measured at fair value under IAS 40,
* and biological assets under IAS 41

Question 3

Carrying amount

Answer 3

amount at which an asset is recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon.

Question 4

Cash generating unit

Answer 4

smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

Question 5

Costs of disposal

Answer 5

incremental costs directly attributable to the disposal of an asset or cash‑generating unit, excluding finance costs and income tax expense.

Question 6

Depreciable amount

Answer 6

cost of an asset, or other amount substituted for cost in the financial statements, less its residual value.

Question 7

recoverable amount

Answer 7

is the higher of its fair value less costs of disposal and its value in use.

Value in use is the present value of the future cash flows expected to be derived from an asset or cash‑generating unit.

Question 8

Useful life

Answer 8

(a)

the period of time over which an asset is expected to be used by the entity; or

(b)

the number of production or similar units expected to be obtained from the asset by the entity.

Question 9

Assesment requirments

Answer 9

• Test at End of reporting period for impairment.
• Intangible assets w/ indefinite useful life and good will must be tested for impairment annually.
• Annual testing for intangible asset not yet available for use.

Question 10

External Signs of impairment:

Answer 10

*Observable indications of significant decline compared to passage of time or normal use.
* Significant adverse changes in the technological, market exonomic or legal environment.
* Increase in market interest rates affecting the discount rate used in calculating value in use and decrease recov amt materially.
* Carrying amt of net assets> market cap.

Question 11

Internal Signs of impairment:

Answer 11

• Evidence of obsolescence or physical damage.
• Significant changes in asset usage, including becoming idle or plans for disposal
• Evidence from internal reporting indicating worse -than-expected economic performance.
  *

Question 12

For Dividend from Subsidiary, Joint Venture or ASSOC

Answer 12

Recognition of dividend and and evidence avaiable of carrying amount in separate financial statements exceeding the amount in the consolidated statements

or dividend exceeds the total comprehensive income of subsidiary, joint venture or associate in period dividend is declared.

Question 13

Evidence from Internal Reporting of Impairment

Answer 13

• Higher-than-budgeted cash flows for acquisition or maintenance.
• Actual cash flows or profits significantly worse than budgeted
• Significant decline or increase in budgeted cash flows or profits.
• Operating losses or net cash outflows when aggregated with future budgeted amounts

Question 14

Assumptions for cash flow projections

Answer 14

• Reasonable and supportable with weight to external evidence
• Mgmt best estimate from recent budgets/forcasts, excluding future restructuring effects.
• Extrapolation for periods beyond forecast using steady or declining growth rate.

Question 15

Composition of Cash Flow Estimates:

Answer 15

• Inflows from asset use, outflows directly attributable and net disposal proceeds.
• Excludes financing activities, income tax and cash flow or asset enhancements until committed.

Question 16

Treatment of Restructuring and Enhancement:

Answer 16

• Future cash flows exclude those from future restructurings or asset enhancements until committed.
• Once committed to restructuring, cash flow estimates reflect cost savings, and restructuring provisions are recognized.

Question 17

Estimating Discount Rate:

Answer 17

Derived from market transactions or surrogates if not directly available.

Question 18

Treatment for impairment loss

Answer 18

recognized immediately in profit or loss unless the asset is carried at a revalued amount.
For revalued assets, the impairment loss is recognized in other comprehensive income if it does not exceed the revaluation surplus.

Question 19

CGU and Goodwill

Answer 19

The recoverable amount is determined for individual assets or the CGU to which the asset belongs. Consistent judgment used for CGU’s.

Goodwill acquired in a business combination is allocated to CGUs expected to benefit from the synergies.

Question 20

Criteria for reversing impairment loss:

Answer 20

If a change in the estimates used to determine the asset’s recoverable amount since last loss recognized.

Increased CA due to reversal cannot exceed amt prior to impairment.

e.g change in discount rate or fcf. Not value in use.

Question 21

Treatment for Reversal:

Answer 21

• Reversal recognized immediately P&L unless the asset is carried at a revalued amount.
• For revalued assets, reversal recognized in other comprehensive income and profit or loss.
• Adjust future depreciation to allocate the revised carrying amount over the remaining useful life.
• Reversal is allocated to the assets of the unit pro rata with their carrying amounts, except for goodwill(never reversed)

Question 22

Disclosures split

Answer 22

• For Each Class of Assets:
• For Each Reportable Segment (if applicable):
• For Individual Assets or Cash-Generating Units:
  *

Question 23

For Each Class of Assets:

Answer 23

• Impairment Losses Recognized in Profit or Loss:
• Reversals of Impairment Losses Recognized in Profit or Loss:
• Impairment Losses on Revalued Assets Recognized in Other Comprehensive Income:
• Reversals of Impairment Losses on Revalued Assets Recognized in Other Comprehensive Income:
  *

Question 24

For Individual Assets or Cash-Generating Units:

Answer 24

• Events and Circumstances Leading to Recognition or Reversal of Impairment Losses.
• Amount of Impairment Loss Recognized or Reversed.
• Assumptions Used in Determining Recoverable Amounts:
  1. Key assumptions and rationale.
  2. Period of cash flow projections.
  3. Growth rate used.
• Disclosure of Unallocated Goodwill (if any).
• Carrying Forward of Recoverable Amount Calculations (if applicable).