IAS 36- Imparement Of Non-Current Assets

Question 1

How can we recover a value of an asset?

Answer 1

• sell it (net realisable value)

- the asset can be used to generate cash flow (value in use)

Question 2

Requirements:

Answer 2

Carrying amount
l
lower of
/ \
Net book value Recoverable amount
l
Higher of
/ \
Net realisable value Value in use

Question 3

The objectives of IAS 36- are to ensure that

Answer 3

• non current assets are recorded in the accounts at no more than their recoverable amount
• any resulting impairment loss is measured and recognised on a consistent basis; and sufficient information is disclosed so users understand impact of impairment

Question 4

What does IAS 36 require

Answer 4

• IAS 36 requires that impairment reviews should be carried out if there is an indication that an individual asset may have fallen in value

Question 5

Indicators in a possible fall in value include:

Answer 5

• a loss in the current period together with either past losses or expected future losses
• a significant fall in the market value of an asset

Question 6

Business problems that might cause impairment

Answer 6

• a fall in price due to increased competition