IAS 36: Impairment of Assets Quiz

Impairment of Assets

IAS 36 is an International Financial Reporting Standard (IFRS) that deals with the impairment of assets. The standard outlines the procedures for identifying and measuring impairment losses.

Key Concepts

• Impairment loss: The amount by which the carrying amount of an asset exceeds its recoverable amount.
• Carrying amount: The amount at which an asset is recognized in the statement of financial position.
• Recoverable amount: The higher of an asset's fair value less costs to sell and its value in use.

Identifying Impairment

• An entity should assess at each reporting date whether there is any indication of impairment.
• If any indication exists, the entity should estimate the recoverable amount of the asset.
• Indications of impairment may include:
  • External factors: market value declines, changes in market conditions, etc.
  • Internal factors: physical damage, obsolescence, etc.

Measuring Impairment

• Fair value less costs to sell: The amount that can be obtained from the sale of an asset in an arm's length transaction, minus the costs of selling.
• Value in use: The present value of the future cash flows expected to be derived from an asset.
• The recoverable amount is the higher of fair value less costs to sell and value in use.

Impairment Loss Calculation

• Impairment loss = Carrying amount - Recoverable amount
• The impairment loss should be recognized in the income statement, unless it relates to a revalued asset.

Cash-Generating Units (CGUs)

• A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets.
• When impairment is identified, the entity should determine the recoverable amount of the CGU, rather than individual assets.

Disclosure Requirements

• An entity should disclose the following:
  • The amount of impairment losses recognized in the income statement.
  • The amount of impairment losses reversed in the income statement.
  • The main classes of assets affected by impairment losses.

Impairment of Assets

• IAS 36 deals with the impairment of assets, outlining procedures for identifying and measuring impairment losses.

Key Concepts

• Impairment loss: the excess of an asset's carrying amount over its recoverable amount.
• Carrying amount: the amount at which an asset is recognized in the statement of financial position.
• Recoverable amount: the higher of an asset's fair value less costs to sell and its value in use.

Identifying Impairment

• Assess for indications of impairment at each reporting date, considering:
  • External factors: market value declines, changes in market conditions, etc.
  • Internal factors: physical damage, obsolescence, etc.
• If indications exist, estimate the asset's recoverable amount.

Measuring Impairment

• Fair value less costs to sell: the amount obtained from an arm's length sale, minus selling costs.
• Value in use: the present value of future cash flows expected from an asset.
• Recoverable amount: the higher of fair value less costs to sell and value in use.

Impairment Loss Calculation

• Impairment loss = Carrying amount - Recoverable amount
• Recognize the impairment loss in the income statement, unless it relates to a revalued asset.

Cash-Generating Units (CGUs)

• A CGU is the smallest group of assets with largely independent cash inflows.
• When impairment is identified, determine the recoverable amount of the CGU, not individual assets.

Disclosure Requirements

• Disclose:
  • Impairment losses recognized in the income statement.
  • Impairment losses reversed in the income statement.
  • Main classes of assets affected by impairment losses.