FR - Impairment of Assets

Question 1

When does impairment occur

Answer 1

• Occurs when an entity is unable to recover the carrying amount or carrying value of the asset
• When an asset can’t recovered through the sale of use, it is impaired and needs to be written down

Question 2

What are the four steps to determine if impairment exist

Answer 2

1. Determine the level of asset group
   - Cash generating unit (CGU) - a smallest group of asset that generates cash flow independent from other assets or groups of asset involved judgement
   - More difficult to specifically attribute cash flow to them
2. Identifying when to test for impairment
3. Indicators of impairment - entity must assess whether indicators of impairment exist at end of each reporting period
   Internal
   - Evidence of obsolescence or physical damage
   - Significant change in use of asset/ CGU such as discontinue, disposal
   External
   - Significant decline in market value, change in technological, market, economic or legal environmental. Annual impairment test
4. Determine the recoverable amount
5. FV - less cost of disposal 2. Value in use
   FV- is the price that would be received to dispose an asset to CGU in orderly transaction
   Value in use - usually determine by discounting the estimated net future cash flow between market
6. Test for impairment and record loss, if any
   Impairment loss = recoverable amount - carrying amount
   If separable allocation
   Dr. Impairment loss xx
   Cr. Accumulated impairment xx
   directly journal entry
   Dr, Impairment loss xx
   Cr. asset xx

Question 3

How is the reversal of impairment loss recorded

Answer 3

• Can be reversed if there are indicators that the recoverable amount has increase since an impairment
• Is limited to increasing the carrying amount/ NBV of the asset to what it would have recognized
• Reversal of impairment losses is a reason why a company chooses to use contra asset impairment account
  Dr. Accumulated impairment loss - asset xx
  Cr. REcovery of impairment loss. xx
  Dr. Asset xx
  Cr. Recovery of impairment loss xx

Question 4

Explain how impairment of intangible assets is determined for finite useful life

Answer 4

• Standard applies the same as PP&E to assess indicators of impairment

Question 5

Explain how impairment of intangible assets is determined for indefinite useful life

Answer 5

• It is tested annually, to assess if there are any indicators of impairment

Question 6

How is impairment determined for goodwill

Answer 6

• be assigned a CGU when the carrying amount is the recoverable amount, an impairment loss is recorded
• CGU recoverable amount highest of:
  1. FV - cost of disposal
  2. Value in use

Question 7

What Handbook Section is used for IFRS and ASPE

Answer 7

IFRS - IAS 36
ASPE - 3063

Question 8

What is the difference between IFRS and ASPE

Answer 8

ASPE
1, use identify asset group - long lived asset is grouped with other asset and liabilities to form
2, Monitor impairment indicators - ASPE looks for indicators that lead to impairment
3. If indicator exist, determine the recoverable amount
4. Write down to FV

Process
1. Compare carrying amount to the sum of the undiscounted cash flow exist
2. Determine FV and compare to carry value
Loss = FV - carrying amount

Intangible asset
Impairment loss = FV - carrying amount