IAS 36 Impairment Of Assets

Question 1

Define the term impairment

Answer 1

An asset is impaired if its recoverable amount is below the value currently shown in the SOFP

Question 2

Identify when an impairment has potentially arisen

Answer 2

There are internal sources to indicate impairment: Evidence of physical damage or a net cash outflow from operating activities. There are external sources to indicate impairment: a significant decline in a NCA’s market value or a significant adverse change in the market in which the business operates

Question 3

Identify whether an asset is impaired

Answer 3

To identify whether an asset is impaired, the recoverable amount should be calculated, the asset should be written down to the recoverable amount and the impairment loss should be immediately recognised in the statement of profit or loss

Question 4

Define the term CGU

Answer 4

A CGU is the 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

Explain the accounting treatment for impairment losses for CGU’s

Answer 5

Impairment of a CGU: Step 1 - deal with any specifically impaired assets, the impair the CGU. Step 2 - IAS 36 requires that an impairment loss attributable to a CGU should be allocated to write down the assets in the following order 1 - purchase of goodwill 2 - the other assets in the CGU on a pro-rate basis based on the carrying amount of each assets in the CGU

Question 6

Apply IAS 36

Answer 6

Recoverable amount = higher of an assets fair value less cost of disposal or the value in use
Journal entries if the asset is impaired Dr Impairment Loss (IS) CR Asset A (BS)