Impairment of Asset

Question 1

IAS 26 - Impairment of Assets

Answer 1

Relate to assets under IAS16 PPE and assets under IAS38 Intangible assets

Impairment = Recoverable amount is lower that the carrying amount.

This means we are overstating the assets and we need to impair to adjust for this.

Question 2

Recoverable Amount & Value in Use

Answer 2

The Recoverable amount is the HIGHER of…

Fair Value - costs to sell: OR

Value in Use = present value of future cashflows. (1/1.0% to the power of time)

Question 3

Indicators of Impairment

Answer 3

External
- Changes in the Market
- Interest rate changes

Internal
- Damage to the Asset
- Not performing as expected

Question 4

Recognition

Answer 4

Dr - Impairment expense (COS)
Cr - NCA

If already revalued:

DR - Revaluation reserve
Cr - NCA

**Once the revaluation is reduce to nil, remaining impairment should be taken to the impairment expense account (COS)

If reversed the following year, reverse to the account it was booked.

Question 5

Cash Generating Unit - CGU

Answer 5

Is a collection of assets which are seen as a set which generate a single income. Cannot be valued without each other

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

Question 6

Calculation an impairment of CGU

Answer 6

Step 1 - Goodwill is first to go, reduce to nil

Step 2. apportion the rest amongst the remaining CGU/Assets

*do not include receivables or bank.