l13 : impairments

Question 1

what does ias36 state?

Answer 1

ensure assets are carried at no more than recoverable amount

Question 2

define impairment.

Answer 2

when assets carrying amount exceeds recoverable amount

Question 3

define carrying amount.

Answer 3

amount at which the asset is recognised in balance sheet after deducting accumulated depreciation and impairment losses

Question 4

define recoverable amount.

Answer 4

higher of NSP (assets fair value less costs to sell) and value in use

Question 5

define fair value.

Answer 5

amount obtainable from sale of asset in arms length transaction

Question 6

define value in use.

Answer 6

discounted npv of estimated future cash flows expected to arise from continuing use of asset and also from disposal at end of useful life.

Question 7

give two internal indicators of impairment.

Answer 7

• evidence of obsolescence or physical damage of an asset
• asset part of restructuring or held for disposal

Question 8

give four external indicators of impairment.

Answer 8

• market value of asset declined, more than would be expected of normal use
• significant adverse tech, legal or econ changes occured
• market IR increased, changes discount rate used to calculate VIU, so decreases recoverable amount
• firm stock price lower than book value of net assets

Question 9

where is impairment loss included in SOCI?

Answer 9

if relating to production machinery, then include in CoS

Question 10

how are research costs incurred?

Answer 10

must expense in year incurred

Question 11

how are development costs incurred?

Answer 11

must capitalise as an asset. has to include directly attributable costs and necessary, identifiable overheads (dep, rent, insurance)