IAS 36 - Impairment of Assets

Question 1

What is the key rule of impairment?

Answer 1

1 Work out Carrying Amount

2 Work out Recoverable Amount (higher of value in use and fair value less costs to sell)

If CA > RA - impair
If CA < RA - do not impair

Dr Impairment Expense
Cr Asset

Question 2

What are some common indicators of impairment?

Answer 2

Decline in market value
Physical damage
Plans to dispose asset
Technological, legal or economic changes

Question 3

Accounting for impairment of previously revalued assets

Answer 3

1 Calculate NBV before revaluation

2 Account for revaluation

3 Work out new depn. less old depn. (to be debited to reval reserve)

4 Account for impairment
Dr Reval reserve (by no.3)
Dr Impairment expense (impairment loss less no.3)
Cr Asset (full impairment loss amount)

Question 4

Impairment of a Cash Generating Unit

Answer 4

1 Charge impairment to Goodwill

2 Allocate remainder Pro-rata

• BUT
  a) cannot impair an asset that has gone up in value
  b) can only impair to net realisable value

NB Receivables and Cash always @ NBV

Question 5

What are the disclosure requirements for IAS 36?

Answer 5

• The amount of impairment losses and which expense category it is included in
• The amount of reversals for impairment losses recognised in the P/L and where it is included.
• The amount of impairment losses recognised directly in equity
• The amount of reversals of impairment losses recognised directly in equity.