Impairment of Assets

Question 1

impairment loss

Answer 1

amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount

Question 2

Assets within the scope of IAS36

Answer 2

• Property, Plant & Equipment
• Intangible assets
• Goodwill

Question 3

Goodwill (Special consideration)

Answer 3

Difficult because it is a residual balance, consisting of assets that cannot be individually identified or separately recognized. It is not possible to identify either fair value less cost to sell or cash flows specifically related to goodwill => goodwill can only be tested for impairment at the level of cash-generating units

Question 4

Impairment recoverable amount

Answer 4

• recoverable amount > carrying amount then no further action is required
• recoverable amount < carrying amount then impairment loss

Question 5

Recoverable amount

Answer 5

equal to higher of
- fair value less cost of disposal
- value in use (PV future cash flows)

Question 6

value in use

Answer 6

present value of future cash flows expected to be derived from an asset or cash-generating unit

Question 7

Impairment loss recognition for individual assets - cost model

Answer 7

impairment loss is recognized immediately in profit/loss

Question 8

Impairment loss recognition for individual assets - revaluation model

Answer 8

impairment loss is treated as a revaluation decrement (in profit/loss is there is no further revaluation surplus)

Question 9

First step impairment revaluation model

Answer 9

write-down asset (accumulated depreciation set to zero and transfer to asset)

Question 10

Asset revaluation surplus (taxes)

Answer 10

Take into account taxes in the asset revaluation surplus (surplus gets lower due to the taxes)

Question 11

identifying cash generating units

Answer 11

• smallest identifiable group of assets
• that generates cash inflows
• that are largely independent of the cash inflow from other assets or group of assets

Question 12

active market for output then…

Answer 12

asset shall be identified as a CGU even it some or all output is used internally

Question 13

Recognition of impairment losses (CGU)

Answer 13

1) any impairment loss is first allocated to goodwill of CGU
2) remaining impairment losses are allocated to assets on a pro-rata basis
3) the carrying amounts of the individual assets of CGU cannot be reduced blow their lower bounds, highest of their Fair value less costs of disposal, value in use, zero
4) any excess loss below an asset’s lower bound is reallocated to the remaining assets based on their new carrying amounts after the initial allocation of impairment losses

Question 14

corporate assets

Answer 14

are integral to other cash-generating units generating cash flows but do not by themselves independently generate cash flows

Question 15

Steps allocation to corporate assets

Answer 15

1) allocation of corporate assets to other CGUs that were using the CGUs services during the reporting period (include into impairment test)
2) if no reasonable allocation possible: test CGUs separately

Question 16

Reversal of impairment losses

Answer 16

shall be reversed, if and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized (annually assessed)

Question 17

NOT reversal of impairment losses

Answer 17

Reversal for goodwill is NOT allowed

Question 18

How allocate reversal impairment losses

Answer 18

• relating to a CGU: allocate across the assets of CGU on pro-rata basis
• relating to specific assets within CGU: Accounted for in the same way as for individual assets. New carrying amount of an asset cannot be increased above lower of a) recoverable amount b) carrying amount that would have been determined had no impairment loss be recognized