Impairment Of Assets Flashcards
What is the main objective of IAS 36?
To ensure that assets are carried at no more than their recoverable amount and to define how the recoverable amount is calculated.
Define ‘impairment’ as per IAS 36.
An asset is impaired when its recoverable amount falls below the carrying amount.
What is the ‘carrying amount’ or ‘Net Book Value’ (NBV)?
Amount at which asset is recognised in the Statement of Financial Position.
What constitutes the ‘recoverable amount’?
Higher of:
* fair value less costs of disposal
* value in use.
What should be reviewed for indications of impairment at each Statement of Financial Position date?
All assets.
List the external sources that may indicate impairment.
- Falls in market value
- Material adverse changes in markets
- Material adverse changes in economy or laws
- Increases in market interest rates.
List the internal sources that may indicate impairment.
- Obsolescence or physical damage
- Asset is part of restructuring or held for disposal
- Worse economic performance than expected.
When is an asset considered not impaired?
If either fair value less costs of disposal or value in use is greater than the carrying amount.
What is ‘fair value less costs of disposal’?
Price received to sell asset in orderly transaction between market participants at measurement date less costs of disposal.
Define ‘value in use’.
The discounted present value of estimated future cash flows expected to arise from the asset’s remaining useful life and from its disposal.
What are cash-generating units?
Smallest identifiable group of assets that generates cash inflows largely independent of cash inflows from other assets/groups of assets.
What is the accounting treatment for an impairment loss if an asset is held at cost?
Impairment loss treated as expense in the Statement of Comprehensive Income; accumulated depreciation increased.
What should be done if an asset is held at valuation and experiences an impairment loss?
Treat as new revaluation; impairment loss taken to equity to extent of revaluation surplus on that asset.
What is the accounting treatment for the reversal of past impairment losses for an asset held at cost?
Increase subject to maximum; must not exceed what carrying amount would have been if initial impairment had not been recognised.
What is required for disclosure regarding impairment losses and reversals?
Reported in Statement of Comprehensive Income and taken directly to equity (Revaluation reserve).
What should be disclosed if individual impairment loss or reversal is material?
- Events and circumstances resulting in impairment loss
- Amount of loss or reversal
- Nature of individual asset or description of cash generating unit.
True or False: Impairment applies to classes of assets.
False. Impairment applies to individual assets.
Fill in the blank: The recoverable amount is the higher of the _______ or _______.
[FVLCD] or [VIU].
What happens if the revaluation model is adopted under IAS 16?
Impairment and impairment reversals are treated as ‘new revaluations’.
What is the treatment of impairment under the cost model adopted under IAS 16?
Impairment recorded as an expense and an impairment reversal is capped to ‘what would have been’.
