Impairment of Assets

Question 1

IAS 36 Impairment of Assets requires an entity to write down ________ of an asset to its __________ if the __________ is not recoverable in full.

Answer 1

carrying amount of an asset to its recoverable amount if the carrying amount is not recoverable in full

Question 2

Assets in this case include all _________ and ________.

Answer 2

tangible & intangible assets

Question 3

IAS 36 Impairment asset exclude assets such as…..

Answer 3

• inventories
• deferred tax assets
• assets under IAS 19 Employee benefits
• assets within IFRS 9 Financial instruments

Question 4

What is impairment loss?

Answer 4

amount by which carrying amount of an asset or cash-generating units EXCEEDS its recoverable amount

Question 5

What is carrying amount?

Answer 5

Amount at which asset is recognised after deducting accumulated depreciation and any impairment losses in the SOFP

Question 6

What is recoverable amount?

Answer 6

Higher of

fair value less costs of disposal of an asset (or CGU)

AND

its value in use

Question 7

What is FV less costs of disposal?

Answer 7

Price that would be received to sell asset in an orderly transaction between market participants at measurement date

LESS

direct incremental costs attributable to the disposal of asset

Question 8

What is value in use of an asset?

Answer 8

PV of estimated future cash flows expected to be derived from the used of an asset

Question 9

what are the events indicating impairment (external sources)?

Answer 9

• value of asset declined
• significant changes with adverse effect on entity
• increased market interest rates or other market rates
• CA of net assets of entity exceeds market capitalisation

Question 10

what are the events indicating impairment (internal sources)?

Answer 10

• evidence of obsolescence or physical damage
• significant changes with an adverse effect on the entity
• internal evidence available that asset performance worse than expected

Question 11

What can be allocated in the CGU?

Answer 11

• Goodwill

- corporate assets. (eg head office assets)

Question 12

How is the impairment loss recognised for assets carried at historical cost?

Answer 12

expense in profit or loss

Question 13

How is the impairment loss recognised for revalued assets?

Answer 13

under appropriate rules of applicable IFRS standards.

Eg under IAS 16; first to comprehensive income –> reducing any revaluation surplus
any remainder as an expense to P/L

Question 14

How is impairment loss for a CGU being allocated?

Answer 14

• to any goodwill allocated to the CGU

- to the other assets of the unit on pro rata basis based on CA of EACH asset