Impairment of assets

Question 1

Objective of IAS 36 Impairment of Assets

Answer 1

• to set rules to ensure that the assets of an entity ‘are carried at no more than their recoverable amount’

Question 2

Excluded assets in impairment

Answer 2

• inventories IAS 2
• construction contracts IAS 11
• deferred tax assets IAS 12
• assets arising form employee benefits
• financial assets included in the scope of IFRS 9
• investment property measured at fair value IAS 40
• non-current assets classified as held for sale IFRS 5

Question 3

What is the impairment?

Answer 3

• an asset is impaired if its recoverable amount is below the value currently shown on the statement of financial position - the asset’s current carrying amount

Question 4

Recoverable amount is taken as the higher of:

Answer 4

• fair value less costs to sell ( net realisable value)e
• value in use

Question 5

When impairement exist?

Answer 5

-when carrying amount is higher than recoverable amount and greater of :
- fair value less costs to sell
- value in use

Question 6

Measurement of fair value less costs to sell

Answer 6

• binding sale agreement
• the current market price less costs of disposal

Question 7

Measurement of value in use

Answer 7

• determined by estimating future cash inflows and outflows to be derived from the use of the asset and its ultimate disposal, and applying a suitable discount rate to these cash flows

Question 8

Indication of impairment

Answer 8

• external sources of information:
  market value decrease
  changes in market affect entity
  interest rates change
• internal sources of information:
  obsolescence/damage
  changes to way asset is used
  evidence that performance of asset worse than expected

Question 9

Impairment review

Answer 9

• the recoverable amount should be calculated
• the asset should be written down to recoverable amount
• the impairment loss should be immediately recognised in the statement of profit or loss

Question 10

Reversal of impairement

Answer 10

if actual events turn out to be better than predicted, indicators of impairment reversal are external and internal

Question 11

What is definition of CGU?

Answer 11

CGU(Cash Generating Units)
- ‘the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets’

Question 12

Impairment calculation is done be:

Answer 12

• assuming the cash generating unit is one asset
• comparing the carrying amount of the CGU to the recoverable amount of the CGU
• Carrying amount of CGU = carrying amounts of all assets in CGU added together
• Recoverable amount CGU = recoverable amount of all assets in CGU added together
• impairment exists where the carrying amount exceeds the recoverable amount