Impairment Of Assets Flashcards
Objective
To provide the procedures an entity should follow to ensure assets are not carried at a value that is greater than the recoverable amount
Recoverable amount
The maximum economic benefits that could be obtained from the asset
The higher of fair value less cost to sell and value in use
Scope
Land
Building
Machinery and equipment
Investment property carried at cost
Intangible assets
Goodwill
Investment in subsidiaries
Assets carried at revalued amounts
How can an asset be recovered
Value-In-Use
Sale (FV Less Cost of disposal)
Steps in the impairment process
Identification of an asset that may be impaired
performing an impairment test
recognizing the impairment loss
Identification of asset that may be impaired
Assess at the end of each reporting date if there’s an indication that an asset may be impaired using external and internal sources
External sources
Decline in assets market value
adverse changes in the technological economic environment in which the entity operates
increase in the market interest rates
Internal sources
Evidence of adolescence or physical damage
adverse changes to the use of the asset
economic performance of the asset is worse-than-expected
Impairment test
Asset is impaired if the carrying amount is greater than the recoverable amount
impairment loss = carrying amount - recoverable amount
Impairment loss
The amount by which the carrying amount of an asset is reduced by its recoverable amount
Carrying amount before impairment
Cost less accumulated depreciation
Carrying amount after impairment
Cost less accumulated depreciation less accumulated impairment
Recording of impairment loss
Decreasing the carrying amount of the asset
recognising an expense or loss and the SCI
Cost model journal entry
DR impairment loss (P/L)
CR accumulated impairment (SFP)
Revaluation model journal entry
DR Revaluation reserve (OCI)
DR impairment loss (P/L)
CR accumulated impairment (SFP)
