Impairment of Assets Flashcards
What is the accounting standard for Impairment of Assets?
IAS 36
When is an asset impaired?
When the carrying amount exceeds the recoverable amount
What is the recoverable amount?
The higher of fair value less costs to sell and value in use
How do you allocate an impairment loss to a CGU?
- Goodwill to zero
2. Proportionately allocate to PPE and intangibles
What is value in use?
The present value of future cashflows based on the assets current condition and the pre tax rate based on risk
Should the pre or post tax rate be used when reflecting the value in use and the time value of money?
Pre tax rate
What is a CGU?
The smallest identifiable group of assets for which independent cashflows can be identified and measured
Where would you allocate impairment?
Dr P/L
Cr Impairment
Unless you have a Reval surplus for that asset
What two ways can you calculate goodwill?
Proportionate share (working out on 80% basis) FV method (working out on 100% basis)
If we calculate goodwill at proportionate share, do you gross up the impairment or leave it out?
Gross it up
If we calculate goodwill at FV method, do you gross up the impairment or leave it out?
Leave it out
What are 3 external indicators of impairment?
- Significant fall in MV
- Adverse effect on the business in the technological, market, economic, or legal environment in which the entity operates
- increased market interest rates that reduce value in use
What are 3 internal indicators of impairment?
- Evidence of obsolescence
- Asset is not used as much in the business
- internal evidence that the performance will be worse than expected
How do you calculate the carrying amount with regards to groups for proportionate share?
Net assets (excl goodwill)
Original goodwill
Plus notional goodwill: (grossed up)
Can previous impairments to goodwill be reversed?
No
