Impairment of Assets

Question 1

An impairment loss is…

Answer 1

the amount by which the carrying amount of an asset or cash-generating unit exceeds its recoverable amount

Question 2

In scope of IAS 36 (impairment of assets)

Answer 2

PPE
Intangible assets
Goodwill

Question 3

CGUs with goodwill must…

Answer 3

be tested for impairment annually

Question 4

Recoverable amount =

Answer 4

the higher of the fair value less cost of disposal and the value in use.

Question 5

Value in use is the

Answer 5

present value of the future cash flows expected to be derived from an asset or cash-generating unit

Question 6

5 elements that have to be reflected in the value of use

Answer 6

• An estimate of the future cash flow the entity expects to derive from the asset
• Expectations about possible variations in the amount or timing of those future cash flows;
• The time value of money, represented by the current market risk-free rate of interest
• the price for bearing the uncertainty inherent in the asset; and
• other factors

Question 7

A CGU is defined as

Answer 7

• The smallest identifiable group of assets
• That generate cash inflow
• that are largely independent of the cash inflows from other assets or groups of assets

note:
if an active market exists for the output produced, that asset or group of assets shall be identified as a CGU even if some or all of the output is used internally

Question 8

Impairment losses recognition steps

Answer 8

1) Any impairment loss is first allocated to goodwill of the CGU
2) Remaining impairment losses are allocated to assets on a por-rate basis
3) The carrying amounts of the individual assets of the CGU cannot be reduced below their lower bounds of the highest of
- Fair value less cost of disposal
- Value in use
- Zero
4) Any excess loss below an assets’ lower bound is reallocated to the remaining assets based on their new carrying amounts after the initial allocated of impairment losses

Question 9

Reversal of impairment losses

Answer 9

Recognised impairment losses are reassessed annually

Individual assets;
New CA cannot be higher than the CA
Goodwill reversal now allowed

CGU
New CA cannot be higher than the lower of the recoverable amount or the carrying amount that would have been determined had no impairment loss been recognized for the asset in previous periods