Impairment of assets

Question 1

How do you know if there is impairment?

Answer 1

If the carrying amount of the asset is higher than its recoverable amount then the asset has been impaired.

Question 2

what is the recoverable amount of an asset?

Answer 2

The higher of -
FVLCTS (proceeds if sold)
and VIU (economic benefit if kept)

Question 3

How do you account for the impairment of an asset held at historical cost?

Answer 3

loss is charged straight to the p/l

Question 4

How do you account for the impairment of an asset previously revalued upwards?

Answer 4

First charged to the revaluation surplus to zero (if possible)

any excess is charged as an expense

Question 5

What are the borrowing costs that must be capitalised?

Answer 5

a) funds borrowed specifically for construction

(if not all funds used the borrowing costs capitalised must be reduced by the investment received off funds)

b) construction financed out of the general borrowing of the entity

(amount of borrowing should be calculated by the weighted average cost of general borrowing)

exclude any funds specifically for borrowing form WAC

Question 6

What is a qualifying asset?

Answer 6

An asset that takes a necessarily substantial period of time to get ready

Question 7

When should capitalisation of borrowing costs begin?

Answer 7

when all three criteria met:

1. incurs expenditure for the asset
2. incurs borrowing costs
3. undertakes activities that are necessary to prepare the asset for its intended use or sale

capitalisation stops when all are complete