Impairment of assets ch7

Question 1

When is an asset impaired?

Answer 1

When carrying amount > recoverable amount

Question 2

When do you need to consider impairment?

Answer 2

When and only IF there is an indication of IMPAIRENT

Question 3

What is the recoverable amount?

Answer 3

It is the HIGHER of value in use and FV less costs to sell.

Question 4

Give examples of internal sources of information that indicates impairment?

Answer 4

1. Evidence on obsolescence
2. Significant and adverse change in the asset’s usage.
3. Evidence of reduced economic performance of the asset.

Question 5

Give examples of external sources of information that indicates impairment

Answer 5

1. Observed drop in market value of the asset.
2. Significant and adverse change in the environment the entity operates in.
3. Increased interest rates

Question 6

What is a Cash generating unit?

Answer 6

It is a group of assets that together generate cash for the company.

Question 7

When is a CGU used when checking for impairment?

Answer 7

When individual assets don’t have identifiable, separate cash flows.

Question 8

How is impairment recognised on a CGU?

Answer 8

First any Goodwill is reduced/eliminated and then the remaining impairment loss is distributed on a PRO-RATA basis. HOWEVER; no asset should fall below its net selling value or value in use.

Question 9

Can impairment losses be reversed?

Answer 9

Yes. BUT NOT FOR IMPAIRMENT ON GOODWILL.