L6/7/8: AC for Impairment, Leases, Assets Held for Sale & Disc ops

Question 1

What is the technical term for impairment?

Answer 1

IAS 36 Impairment of Assets

Question 2

What is the objective of IAS 38?

Answer 2

To ensure that its assets are carried at no more than their recoverable amount

Question 3

State some internal and external indicators that may prompt testing IAS 38

Answer 3

Internal indicators:
* Physical damage or obsolescence.
* Significant changes in the business that affects how the asset is to be used.
* Poor economic performance.

External indicators:
* Observable indications e.g. market prices.
* Significant changes with an adverse effect in the technological, market, economic or legal environment.
* Increase in the interest (discount) rate – affects ‘value in use’.
* Net assets of the entity exceed market capitalisation.

Question 4

Recoverable amount of assets is the higher of ?

explain what they mean

Answer 4

1. Fair value less costs to sell (price that would be received to sell an asset in an orderly transaction between market participants at the measurement date - IFRS 13)

or

2. Value in use (present value of the estimated future cash flows to be derived from an asset)

Question 5

Explain the accounting treatment for an impairment loss

Answer 5

if the asset is carried at a revalued amount:

First - debit the impairment loss to the revaluation reserve, up to any credit balance previously existing in the revaluation reserve for the same asset.

Then - any excess impairment loss is recognised as an expense in the P/L.

Question 6

What does IAS 36 require at the end of the reporting period?

Answer 6

to assess whether there are:

any indications that previous impairment losses have now decreased or no longer exist.

Question 7

What is a CGU?

Answer 7

Cash generating Unit -

smallest identifiable group of assets…

…that generate cash inflows…

…that are largely independent of cash flows from other assets or groups of assets

Question 8

Whats a lease?

Answer 8

a contract … that conveys the right to use an asset (the under-lying asset) for a period of time in exchange for consideration

Question 9

Whats the technical term for leases?

Answer 9

IFRS 16 Leases

Question 10

How do you account for leases under IFRS 16?

Answer 10

1. Recognise an asset and a liability for all leases, measured at the present value of minimum lease payments at inception of the lease.
2. Recognise depreciation of the asset.
3. Recognise interest expense on the liability, at a constant rate of interest.

Question 11

What are the steps for calculation of Leases under IFRS 16?

Answer 11

1. Determine the interest rate implicit in the lease
2. Calculate the split between interest and repayment of liability
3. Determine entries for SoPL and SoFP

Question 12

Whats the technical term for Assets held for sale?

Answer 12

IFRS 5: Non-current Assets Held for Sale and Discontinued Operations

Question 13

Whats the objective of IFRS 5?

Answer 13

The objective of this IFRS is to specify
the accounting for assets held for sale and the
presentation and disclosure of discontinued operations.

Question 14

Whats the Held for sale definition?

Answer 14

An entity shall classify a non-current asset (or disposal group) as held for sale if its carrying amount will be recovered principally through a sale transaction rather than through continuing use

Question 15

Whats the Held for sale criteria?

Answer 15

• Management must be committed to a plan to sell the asset.
• Must be actively looking for a buyer.
• The price must be reasonable.
• Sale must be expected within one year.
• It must be unlikely that the sale will be withdrawn.

Question 16

How is the value of held for sale assets measured?

Answer 16

An entity shall measure a non-current asset (or disposal group) classified as held for sale at the lower of its carrying amount and fair value less costs to sell

Question 17

What is discontinued operations?

Answer 17

A discontinued operation is a component of an entity that either has been disposed of, or is classified as held for sale, and

1. represents a separate major line of business or geographical area of operations,
2. is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations or
3. is a subsidiary acquired exclusively with a view to resale