IAS 36 Impairment of Assets Quiz: Accounting Estimates and More

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Questions and Answers

According to the IAS 36 standard, what is the recoverable amount of an Intangible Asset?

Value in use only

The higher of fair value less costs of disposal and value in use (correct)

Fair value less costs of disposal

Book value of the asset

When is an impairment test performed for an Intangible Asset with an indefinite useful life?

Annually, regardless of whether there is an indication of impairment or not (correct)

Only when there is an indication of impairment

Only when the asset is available for use

Every five years, whether there is an indication of impairment or not

What is the accounting treatment of an impairment loss on an Intangible Asset?

Same as IAS 36 (correct)

Depends on the type of Intangible Asset

Not accounted for

Same as IAS 38

What happens when an internally generated Intangible Asset is not yet available for use?

Subsequent measurement involves amortization and impairment testing Signup and view all the answers

What is the criterion for reversing an impairment loss on an Intangible Asset?

When the circumstances and events resulting in the original impairment no longer exist and there is persuasive evidence that the new circumstances and events are likely to continue in the foreseeable future Signup and view all the answers

How is an Intangible Asset with a finite useful life accounted for?

Amortization is performed, and impairment testing is also required Signup and view all the answers

When can the residual value of an intangible asset be determined reliably?

When there is a commitment by a third party to purchase the asset at the end of its useful life Signup and view all the answers

What is the purpose of reassessing the useful life, amortisation method, and residual value of an intangible asset annually?

To account for changes in estimates Signup and view all the answers

When should amortisation of an intangible asset cease?

When the asset is fully amortised Signup and view all the answers

Which method of amortisation should be used when the pattern of consumption of an intangible asset's future economic benefits cannot be determined reliably?

Straight-line method Signup and view all the answers

What is the accounting treatment for changes in estimates of an intangible asset's useful life, amortisation method, or residual value?

Change in accounting estimate Signup and view all the answers

Under what circumstances can the residual value of an intangible asset be deemed to be Rnil?

When there is no active market for the asset Signup and view all the answers

According to IAS 8, how are changes in accounting estimates applied?

Prospectively Signup and view all the answers

What is required for disclosing changes in estimates according to IAS 8?

The nature, amount, and impact of the change Signup and view all the answers

What is the useful life of an intangible asset according to IAS 38?

Indefinite, and does not require amortization Signup and view all the answers

What is the treatment of research and development costs according to IAS 38?

Expensed as incurred Signup and view all the answers

What is the characteristic of an internally generated intangible asset?

It is developed internally Signup and view all the answers

What is the requirement for an intangible asset with an indefinite useful life?

Annual impairment testing Signup and view all the answers

Study Notes

Indefinite Useful Life Assessment

If the indefinite useful life assessment is no longer applicable, estimate the remaining useful life and account for this change as a change in an accounting estimate (IAS 8)

Impairment

Use the principles of IAS 36 Impairment of Assets
Test for impairment at year-end if there is an indication of impairment
Calculate the recoverable amount and compare it to the carrying amount
The recoverable amount is the higher of: fair value less costs of disposal; and value in use
Accounting treatment of an impairment loss on an Intangible Asset = same as IAS 36

Annual Impairment Test

Perform an impairment test annually in the following circumstances:
- Intangible Assets with an indefinite useful life
- Internally generated Intangible Assets not yet available for use (development costs)

Subsequent Measurement

Amortisation and Impairment Testing
Intangible Assets not yet available for use: no amortisation, impairment test only
Intangible Assets available for use:
- Finite useful life: amortisation, no impairment test
- Indefinite useful life: impairment test, no amortisation

Impairment Reversals

Use the principles of IAS 36 Impairment of Assets
Reverse a subsequent increase in recoverable amount when:
- The circumstances and events resulting in the original impairment no longer exist
- There is persuasive evidence that the new circumstances and events are likely to continue in the foreseeable future

Amortisation Methods

Straight-line
Diminishing balance (reducing balance)
Units-of-production
If the pattern cannot be determined reliably, use the straight-line method

Amortisation

Amortisation = expense
Debit: Amortisation (SPLOCI)
Credit: Accumulated amortisation (SFP)
Start amortisation when the Intangible Asset is available for use as intended by management
Stop amortisation at the earlier of:
- Date of derecognition
- Date when the Intangible Asset is fully amortised

Residual Value

The residual value of an Intangible Asset with a finite useful life is deemed to be Rnil, unless:
- There is a commitment by a third party to purchase the Intangible Asset at the end of its useful life
- There is an active market for the Intangible Asset which will probably still exist at the end of the Intangible Asset's useful life

Changes in Estimates

Reassess annually for Intangible Assets with a finite useful life:
- Useful life
- Amortisation method
- Residual value
Changes in accounting estimates (IAS 8) are applied prospectively (present and future) and not retrospectively (past)
Disclosure requirements in terms of IAS 8:
- Nature of change in estimate
- Amount of the change in estimate
- The effect/impact of the change in estimate on the current and future periods

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Description

Test your understanding of IAS 36 principles for impairment of assets and changes in accounting estimates. Learn how to estimate remaining useful life, account for changes, and apply impairment testing to calculate recoverable amounts.

IAS 36: Impairment of Assets and Accounting Estimates

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