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Questions and Answers
What defines an impairment loss in the context of IAS 36?
What defines an impairment loss in the context of IAS 36?
Which of the following is NOT an indication of impairment?
Which of the following is NOT an indication of impairment?
In what order should impairment be allocated in a Cash-Generating Unit?
In what order should impairment be allocated in a Cash-Generating Unit?
What is the recoverable amount of an asset?
What is the recoverable amount of an asset?
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Which asset type is tested for impairment annually regardless of indications of impairment?
Which asset type is tested for impairment annually regardless of indications of impairment?
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Study Notes
Definition of Impairment Loss
- Impairment Loss represents the difference between the carrying amount of an asset and its recoverable amount.
Recoverable Amount
- Defined as the higher of fair value less costs to sell or value in use (present value (PV) of future cash flows).
- Value in Use formula: ( \text{PV} = \frac{\text{FCF}}{(1 + R)^N} ).
- Applicable to both Individual Assets and Cash Generating Units (CGUs) based on current usage.
Cash Generating Unit (CGU)
- The smallest identifiable group of assets that generates cash flows.
Identifying a Potentially Impaired Asset
- General Rule: Impairment testing is not required until there is an indication of impairment.
- Exception: Annual impairment tests for intangible assets with indefinite useful lives, such as Goodwill.
External Indicators of Impairment
- Decline in market value of assets.
- Significant changes in technology, market conditions, legal circumstances, or economic environment.
- Rising interest rates impacting asset value.
- Market price of shares falls below the net assets.
Internal Indicators of Impairment
- Evidence of asset obsolescence.
- Physical damage to the asset.
- Adverse changes in asset use or economic performance.
Allocation of Impairment
- Impairment should first be allocated to assets with physical damage or obsolescence.
- Goodwill is impaired after addressing physical damages.
- Non-current assets are impaired pro-rata based on their value.
- Current assets are the last to be considered for impairment allocation.
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Description
Test your understanding of IAS 36 related to impairment of assets. This quiz covers definitions, recoverable amounts, and the calculation of impairment losses. It is essential for students and professionals in accounting and finance to grasp these concepts thoroughly.
