Impairment of Assets Flashcards
What happens with a downwards revaluation? (3 things)
- Decrease in market value
- Written-off against revaluation reserve up to the value of its balance
- Remainder to the SOPL as an impairment
What happens if a previously impaired asset’s market value increases
- If a previously impaired asset’s market value increases
- Previous impairment reversed, up to values previously written-off, to SOPL
- Balance (if any) to revaluation reserve
Example
IAS __ Impairment of Assets
Objective (2)
IAS 36 Impairment of Assets
Objective:
- Ensure that assets are carried at no more than their recoverable amount
- Where the recoverable amount is lower than the carrying value an impairment loss must be recognised immediately
Carrying Value definition
Carrying value
- “Initial cost less depreciation, amortisation and impairment i.e. value on SoFP”
Fair value (____ __) definition
Fair value (IFRS 13):
- “The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”
- The fair value – costs to sell is sometimes referred to as ‘net selling price’
Cost to sell (_____ __) definition
Costs to sell (IFRS 13):
- “Costs directly attributable to the disposal of the asset”
Recoverable amount definition
Recoverable amount
higher of:
- fair value less costs to sell
- value in use
Value in use
Value in use
- present value of future cash flows from use and disposal
ACC2005 / ACC2025: do not need to calculate value in use – it will be provided
Measurement of Impairment Losses (picture)
IAS __ Impairment of assets
- Assets should be individually tested for ______________
- Both ___________ and ______________ assets
- If cash flows do not arise from a ________ asset then from the ______________ ________ of ________ which generates an _________________ _________
- Cash generating unit (CGU)
- Extremely ________________
- Allocation of impairment losses
not required for ACC2005
IAS 36 Impairment of assets
- Assets should be individually tested for impairment
- Both tangible and intangible assets
- If cash flows do not arise from a single asset then from the smallest group of assets which generates an independent income
- Cash generating unit (CGU)
- Extremely judgemental
- Allocation of impairment losses
not required for ACC2005
Indications of impairment (2)
Internal and external indications of impairment
Internal:
- e.g. physical evidence of reduction in asset’s condition
External:
- e.g. a legal or market condition has changed meaning the asset can no longer be used
Need to use judgement for each scenario
____ _ Non-current assets held for sale and discontinued operations
When are non-current assets classified as ‘held for sale’ (2)
Highly probable criteria (4)
IFRS 5 Non-current assets held for sale and discontinued operations
Non-current assets are classified as ‘held-for-sale’ if: their carrying amount will be recovered principally through a sale transaction rather than continuing use. They must be:
- Available for immediate sale in their present condition; and
- The sale must be highly probable:
- management is committed to a plan to sell the asset and an active programme has been initiated to locate a buyer and complete the plan; and
- the asset is being actively marketed at a sale price that is reasonable in relation to its current fair value; and
- a completed sale is expected within one year from the date of classification (although this period may be extended if any delay is caused by circumstances beyond the entity’s control); and
- it is unlikely that there will be any significant changes to the plan or that the plan will be withdrawn.
If these criteria are not satisfied at the end of the reporting period, the asset should not be classified as held for sale. If the criteria are satisfied after the end of the period, but before the financial statements are authorised for issue, the fact that the asset is now classified as held for sale should be disclosed in the notes to the financial statements.
Measurement and presentation of AHFS
Assets held for sale should: (3)
- Be measured at the lower of carrying amount and fair value less costs to sell
- Not continue to be depreciated, and
- Be presented separately on the face of the SOFP
- Additional disclosures are required in the notes
Discontinued operations under ____ _
A component of the entity that either: (2,3)
Discontinued operations under IFRS 5
A component of the entity that either:
- Has been disposed of or
- Has been classified as held for sale and also:
- Represents a major line of business or geographical area of operations or
- Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations or
- Is a subsidiary acquired exclusively for resale
Discontinued operations
Minimum disclosure (3)
- Results from discontinued operations disclosed separately in the SOPL
Minimum disclosure:- Total of post-tax profit of discontinued operations
- Post-tax gain or loss recognised on the measurement to fair value less costs to sell or on the disposal of the assets constituting the discontinued operation
- Further analysis required on the face of the statement of comprehensive income or in the notes
____ _: Accounting Policies, Changes in Accounting Estimates and Errors
What does it deal with? (3/3,2,2)
IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors
Deals with criteria for selecting and changing accounting policies, treatment of changes in estimates, and corrections of errors.
Policy Changes:
- New IFRS
- Relevant and reliable information
- Restate comparatives
Estimates:
- Accounted for prospectively
- No requirement to restate prior periods
Prior Period Errors:
- Mistakes, fraud, materiality
- Accounted for retrospectively
___ __ Events after the reporting period (2/2,1) and note?
IAS 10 Events after the reporting period
Adjusting Events:
- Provide evidence of conditions that existed at the reporting date.
- Must be material.
Non-Adjusting Events:
- Indicative of conditions that arose after the reporting period.
Note: Dividends declared after the end of the reporting period are non-adjusting events; they are disclosed but not recognized.
___ __: Example adjusting events (4)
- The bankruptcy of a customer after the year end
- The discovery of material fraud or errors in the financial statements
- The settlement of a court case which was ongoing at year end
- An indication that inventory had a lower NRV at year end
___ __: Example non-adjusting events (4)
- Disposal of an asset after year end
- Restructuring announced after year end
- Disasters such as fire after year end
- Dividends proposed after year end
