M2: Assets (IAS 36 Impairment of Assets)

Question 1

What type of assets are excluded from IAS 36 Impairment of Assets?

Answer 1

 Inventories (write-down covered by IAS 2 – Lesson 5 of this module)
 Contract assets (write-down covered by IFRS 15, Module 4)
 Employee benefit assets (write-down covered by IAS 19, Module 4)
 Most financial assets (write-down covered by IFRS 9, Module 5)
 Investment properties held at fair value (write-down covered by IAS 40, Lesson 2 of this
module)
 Non-current assets held for sale (write-down covered by IFRS 5, Lesson 4 of this module)

Question 2

What causes an asset to be impaired?

Answer 2

An asset is impaired when its carrying amount exceeds its recoverable amount. Recoverable amount
is the higher of its fair value less costs to sell and its value in use.

Question 3

When do we do impairment tests?

Answer 3

When there is indicators of impairment either internally e.g. damage or external (competitors taking over).

If there is an indicator, management should do an impairment review. Compare Carrying amount and Recoverable amount.

Question 4

What should management do in the following two scenarios:
- If Recoverable amount is less than Carrying amount
- If Recoverable amount is more than Carrying amount

Answer 4

R < CV = We need to write down assets to the recoverable amount and send loss to SPL.

CV > R = Leave it alone. We do not need to do anything.

Question 5

When must an impairment test be done?

Answer 5

Must be done for assets if there is any internal/external indicators.

ALWAYS DONE YEARLY FOR:
- Goodwill
- Intangible assets with an indefinite useful life
- Intangible assets not yet available for use

Question 6

What is the journal when we find the recoverable amount is lower than the Carrying value of the asset?

Answer 6

DR SPL - Impairment Loss
CR PPE Acc’n dep/Intangible Acc’n Amortisation

Depends if Tangible Depreciation, Intangible Amortisation

Question 7

What is the recoverable amount?

Answer 7

Higher of:
- FVLCTS
- Value in use

Question 8

How are impairments presented in a set of financial statements?

Answer 8

SOFP: impairments themselves will not appear on SOFP

SPLOCI: Impairments will be included within expenses

SOCF: Impairments added back as non-cash expenditures in operating activities section

Notes: Accounting policy, impairments usually dealt with in asset note to which impairment relates ,
more detail required if impairment loss is material or material in aggregate

Question 9

How would an impairment be allocated across a Cash generating unit (CGU)?

Answer 9

It would be allocated towards Goodwill, Intangible asset with indefinite life, Intangible asset with definite life and the others first then whatever drops out after is then used on the SPL. Normally, we use the SPL first.

Question 10

How do we calculate Value in use?

Answer 10

We use the net cash flow x Annuity factor (Discount factor)

We use the higher of Value in use OR FVLOS for our Recoverable amount