Impairment of Assets

Question 1

Cash Generating Unit

Answer 1

The smallest group of assets that generate independent cash flows from other assets or groups of assets.

Question 2

(IFRS) Two incidents that lead to the requirement to test for impairment

Answer 2

1. Indicators of impairment

2. Annual tests required for selected assets

Question 3

Indicators of impairment

Answer 3

INTERNAL
.evidence of obsolescence or physical damage
.significant changes in use of asset (discontinuance, disposal, restructuring)
.declining asset performance

EXTERNAL
.significant decline in market value
.significant change in technological/market/economic/legal environment in which the entity operates
.increases in market interest rates decreasing the recoverable amount

Question 4

Assets requiring annual impairment tests

Answer 4

.intangible assets with indefinite useful life
.intangible assets not yet available for use
.CGUs to which goodwill has been allocated

Question 5

recoverable amount

Answer 5

higher of:

a) fair value less cost of disposal
b) value in use (future CF’s from continuing use & ultimate disposal w/ appropriate discount rate)

Question 6

How to record an impairment loss?

Answer 6

dr. loss (net income)
cr. asset

depreciation will be adjusted for future periods

Question 7

Reversal of impairment

Answer 7

Asset is written up to lesser of:
.recoverable amount
.carrying value that would have existed had the asset never been written down

Question 8

IFRS vs ASPE: Asset grouping

Answer 8

IFRS:
.CGU
.generally lower level
.concerned only with cash inflows

ASPE:
.”asset group”
.generally higher level
.unit that produces both inflows and outflows

Question 9

IFRS vs ASPE: When to test for impairment

Answer 9

ASPE: only when events/circumstances indicate

Question 10

ASPE: two-step approach

Answer 10

1. If carrying amount > UNDISCOUNTED cash flows (recoverable amount), then …
2. Loss = FV - carrying amount

Question 11

ASPE: reversal of impairment

Answer 11

not allowed