Set 1 - FR Chapter 10 - Impairment of Assets

Question 1

When is an asset considered to be impaired?

Answer 1

When it’s carrying value cannot be recovered

Question 2

Under IFRS, name two times you test for impairment

Answer 2

when there is evidence of impairment - check at end of each reporting period
annually for certain assets

Question 3

What is a CGU

Answer 3

cash-generating unit. assets can be grouped as this to determine impairment when recoverable amounts for independent units cannot be determined

Question 4

What are some internal and external factors which may indicate impairment?

Answer 4

internal - evidence of obsolescence

• declining asset performance
• sig changes in use of the asset

external - sig decline in market value

• sig change in operating environment
• increases in market int rates, decreasing asset/recoverable amount

Question 5

What are the three types of assets required to be assessed annually?

Answer 5

• intangibles with indefinite useful life
• intangibles not yet ready for use (not being depreciated)
• CGUs to which goodwill has been allocated

Question 6

How is the recoverable amount determined?

Answer 6

higher of:

• FV less costs of disposal
• value in use

Question 7

How is value of use calculated?

Answer 7

discounting estimated future net cash flows from asset’s continuing use and ultimate disposal

Question 8

If recoverable amount is less than carrying value, is there impairment? how is this recorded?

Answer 8

Yes. debit to net income, credit to asset account. depreciation adjusted for future periods. If CGU, goodwill is adjusted first, then pro-rate the loss across the CGU units.

Question 9

What happens if assets recover value? JE to recognize.

Answer 9

Except for goodwill, it can be reversed. Asset is written up to lesser of:
- recoverable amount
- carrying value (net of depreciation) that would have existed had write-down not happened.
- also have to determine current NBV to determine how to much to write-up.
DR asset, CR asset recovery (net income)

Question 10

ASPE differences - asset grouping

Answer 10

ASPE uses asset group, not CGU

Question 11

ASPE differences - when to test

Answer 11

Not needed annually, only when signs of impairment

Question 12

ASPE differences - impairment reversals

Answer 12

Not allowed

Question 13

ASPE differences - test for impairment 2 step approach

Answer 13

1. Compare carrying amount to undiscounted cash flows. If Carrying amount less, no impairment.
2. Determine FV. Loss = FV - Carrying Amount.