IND AS 36 - Impairment of Assets Flashcards
What is the meaning of Impairment and Impairment losses as per the provisions of IND AS 36 - Impairment of assets?
An asset is carried at more than its recoverable amount if its carrying amount exceeds the amount to be recovered through use or sale of the asset. In such case, the asset is described as impaired and the Standard requires the entity to recognise an impairment loss.
Impairment also indicates reduction in the earning capacity of the asset - The standard applies to PPE, Intangibles and Investment property as well - that is to say in all these standards individually no great importance was provided to important related points, hence this standard deals with all of it.
While performing impairment testing what is the meaning of recoverable value and what are it’s components in brief which needs to be kept in mind while comparing it with the carrying value of the asset as per IND AS 36?
Impairment loss = Carrying Value - Recoverable Value (If Positive)
What is the definition of cash generating unit as per the provisions of IND AS 36 - Impairment of assets?
A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
What are the assets for which impairment testing is reviewed at least annually irrespective of whether there is any indication of impairment?
For above three assets, the entity should not have wait for Impairment indicators, rather there is mandate of impairment testing. We will discuss this aspect in detail in the next section.
Other than the assets that have a mandate for annual impairment review, what are the other Indicators that needs to be looked into when it comes to Impairment testing in relation to the other assets?
- We have to look at various internal and External sources of Information for inferring the whether the test is required to be made or not.
How the impairment of the CGU will be computed, when it is not possible to allocate the goodwill relating to that CGU?
What are certain circumstances in which the recoverable amount is determined in the context of the CGU and not on an Individual asset basis?
What is the meaning of cost of disposal and what are the costs that are to be excluded while computing the same?
What are the steps involved in determining the value in use for an asset as per the provisions of IND AS 36?
a) estimating the future cash inflows and outflows to be derived from continuing use of the asset and from its ultimate disposal; and
b) applying the appropriate discount rate to those future cash flows.
Whichever approach an entity adopts to reflect expectations about possible variations in the amount or timing of future cash flows, the result shall be to reflect the expected present value of the future cash flows, i.e. the weighted average of all possible outcomes.
What are the general rules that will apply while estimating the value in use for an asset - while estimating expected future cash flows accordingly?
See the Other points to be considered in line with the above estimation as to various inclusions and exclusions that has to be considered along with the same.
What is the summary of what could be understood from the value in use calculation - Things to be included and excluded and the discount rate that should be used for this purpose?
What are the recognition principles for Recognition and measurement of an impairment loss- Individual Asset?
- Any impairment loss of a revalued asset shall be treated as a revaluation decrease
- When the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates, an entity shall recognize a liability, if required.
- After the recognition of an impairment loss, the depreciation (amortization) charge for the asset shall be adjusted in future periods to allocate the asset’s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life.
- If an impairment loss is recognized, any related deferred tax assets or liabilities are determined in accordance with Ind AS 12 by comparing the revised carrying amount of the asset with its tax base.
What is the general treatment that needs to be followed while allocating corporate assets to cash-generating units?
- Corporate assets are assets other than goodwill that contribute to the future cash flows of both the cash-generating unit under review and other cash-generating units.
- Corporate assets include group or divisional assets such as the building of a headquarters or a division of the entity, EDP equipment or a research centre.
- The structure of an entity determines whether an asset meets this Standard’s definition of corporate assets for a particular cash-generating unit.
What are some distinctive features of corporate asset that can be attributed when it comes to different accounting treatment under different scenarios?
What is the treatment when portion of carrying amount of corporate asset can be allocated on a reasonable and consistent basis to that unit?
the entity compares the carrying amount of the unit, including the portion of the carrying amount of the corporate asset allocated to the unit, with its recoverable amount. Any impairment loss is recognised in accordance with the requirement of this standard.
Question 27 BVK
What is the treatment when portion of carrying amount of corporate asset cannot be allocated on a reasonable and consistent basis to that unit?
What are some basic principles for Recognition and measurement of an impairment loss for a cash-generating unit?
While allocating an impairment loss to individual assets within a CGU, the carrying amount of an individual shall not be reduce below the highest of what items?
Image - Illustration 9
What is the scenario where recoverable amount of an individual asset cannot be the determined?
- an impairment loss is recognised for the asset if its carrying amount is greater than the higher of its fair value less costs of disposal and the results of the allocation procedures described; and
- no impairment loss is recognised for the asset if the related cash-generating unit is not impaired. This applies even if the asset’s fair value less costs of disposal is less than its carrying amount.
What are the examples of increase in the estimated service potential of the asset either from use or from sale, since the date when an entity last recognised an impairment loss for that asset.?
Question 25 - BVK
What is the treatment for reversing an impairment loss for an individual asset as per IND AS 36?
What is the overall provisions in relation to reversal of impairment losses in different situations as per the provisions of IND AS 36?
What is the treatment that should be followed in relation to Non-controlling interests – the impact on goodwill impairment testing as per the provisions of IND AS 36?
See Questions 28 - 31 of BVK to understand the implications of how the same is actually done in exam problems
What is the guidance given in relation to allocation of impairment losses when it comes to subsidiary and when we have a smaller CGU and a larger CGU, how the un allocable portion has to be allocated as per the standard on impairment - IND AS 36?
