Impairment

Question 1

why require impairment test?

Answer 1

ensure assets are not overstated - goes against relevance and faithful representation

Question 2

what is impairment loss?

Answer 2

‘the amount by which the carrying amount (CA) of an asset or a cash‐generating unit exceeds its recoverable amount (RA)’

Question 3

what assets do not require impairment test?

Answer 3

• inventories
• deferred tax asset
• non-current assets held for sale

Question 4

What is impairment?

Answer 4

• An unexpected or sudden decline in the service utility of an asset (PPE in particular). An example is the damage from the Queensland floods.
  Also includes obsolescence due to technical innovation or changes to legislation

Question 5

When undertake impairment test?

Answer 5

• tested only when there is indication of impairment

Annually for: intangibles with indefinite useful lives; intangibles not yet available for use; goodwill from business combination as most uncertain

Question 6

what are external sources of evidence of impairment?

Answer 6

• decline in market value of asset
• change in enviro/market
• increase interest rate
• market capitalisation

Question 7

what are internal sources of evidence of impairment?

Answer 7

• obsolescence or physical damage of individual asset
• change in asset use
• economic performance

Question 8

when has impairment loss occured?

Answer 8

when recoverable amount < carrying amount

Question 9

what is fair value less costs to sell?

Answer 9

the amount obtainable from the sale of an asset in an arm’s length transaction… less the costs of disposal

Question 10

Fair value is determined using the following ‘value hierarchy:

Answer 10

price in a binding sale agreement;
market price (current bid price);
appropriate estimation

Question 11

Costs of disposal include:

Answer 11

legal fees;
stamp duty;
costs of removing the asset etc.;
Finance costs and income tax are not considered to be costs of disposal

Question 12

Value in use ?

Answer 12

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

Question 13

Five elements when calculating value in use

Answer 13

estimate of future cash flows;
expectations about possible variations in amount or timing of future cash flows;
time value of money;
price for bearing uncertainty inherent in asset;
other factors such as illiquidity.

Question 14

Value in use - objective overall is to?

Answer 14

estimate future cash flow and apply discount rate

Question 15

Where the asset is accounted for under the cost model

Answer 15

the impairment loss is recognised immediately in profit or loss.

Question 16

Where the asset is accounted for under the revaluation model

Answer 16

the impairment loss is treated as a revaluation decrement.

Question 17

what is cash generating unit?

Answer 17

as the smallest identifiable group of assets (generating cash flows from continuing use) that are independent of the cash inflows from other assets or groups of assets

Question 18

Identification of CGUs requires consideration of

Answer 18

how management monitors the entity’s operations;
how management makes decisions about continuing or disposing of the entity’s assets and operations.

must be identified consistently from period to period

Question 19

what is goodwill?

Answer 19

Goodwill is a residual balance, consisting of assets that cannot be individually identified or separately recognised
can only be tested for impairment at CGU level

Question 20

Key disclosure requirements for impairment:

Answer 20

1. amount of impairment loss recognised in P&L
2. amount of reversals of impairment losses recognised
3. amount of impairment loss on revalued assets
4. amount of reversals of impairment losses on revalued assets