IAS 36 - Impairment of Assets

Question 1

what is an impairment loss

Answer 1

the amount by which the carrying amount of an asset exceeds its recoverable amount

Question 2

what is the recoverable amount

Answer 2

higher of

fair value - disposal costs (amount obtained by selling)

value in use (amount obtained by using it)

Question 3

what is the value in use

Answer 3

PV of all net cash flows

Question 4

when must an impairment review be carried out

Answer 4

if there is an indication of an impairment

Question 5

example of external indications of impairment

Answer 5

decline in market value of the asset

supply and demand

technology becomes obsolete

Question 6

examples of internal indicators of impairment

Answer 6

damage to asset

asset is idle

discontinue operation

Question 7

what does NBV stand for

Answer 7

net book value

Question 8

what does NRV stand for

Answer 8

net realisable value

Question 9

what is NRV

Answer 9

fair value - disposal

Question 10

how can you use the carrying amount and recoverable amount to determine if the asset has been impaired

Answer 10

if the carrying amount is greater than the recoverable amount, then the asset has been impaired

Question 11

how is an impairment loss dealt with when there is no revaluation reserve

Answer 11

DR SPL impairment loss

CR Asset by impairment loss

Question 12

how to calculate impairment loss

Answer 12

carrying value - recoverable amount

Question 13

if the carrying value is less than the recoverable amount, is the asset impaired

Answer 13

no

Question 14

if there is a revaluation reserve, where does impairment loss go

Answer 14

1. DR Reval reserve
2. Any excess recognised as expense

Question 15

what is a cash generating unit

Answer 15

a number of assets that work together to generate cash and none of them of their own would generate cash eg production line

Question 16

how is impairment loss allocated between assets in a cash generating unit

Answer 16

1. any asset specifically impaired
2. goodwill
3. pro rata across the remainder

Question 17

when writing off assets in a cash generating unit, what is it not to be written below

Answer 17

what you could sell it for on its own
what you could earn using it
0

(fair value - cost of disposal)
value in use

Question 18

what assets will never be written down when allocating across a cash generating unit and why

Answer 18

trade receivables
inventory
cash

they are already at their realisable value

Question 19

why is goodwill hit first

Answer 19

goodwill is a plug in / balancing figure

it is hard to measure as it is not tangible

so accountants don’t like it and want to get rid of it

Question 20

can impairment losses be reversed

Answer 20

yes

except for impairment loss on goodwill, once that is gone, it is gone