IAS 36 Impairment of Assets Quiz

Questions and Answers

What defines an impairment loss in the context of IAS 36?

The loss incurred from the disposal of an asset.

The depreciation of an asset over its useful life.

The amount by which the carrying amount of assets exceeds its recoverable amount. (correct)

The difference between the carrying amount of assets and its market value.

Which of the following is NOT an indication of impairment?

A significant change in the economic environment.

Evidence of physical damage to the asset.

An increase in sales revenue for the asset. (correct)

A fall in market value of the asset.

In what order should impairment be allocated in a Cash-Generating Unit?

Physical damage, goodwill, non-current assets. (correct)

Current assets, physical damage, goodwill.

Non-current assets, goodwill, current assets.

Goodwill, current assets, physical damage.

What is the recoverable amount of an asset?

<p>The higher of fair value less costs to sell or its value in use.</p> Signup and view all the answers

Which asset type is tested for impairment annually regardless of indications of impairment?

<p>Goodwill and indefinite useful life intangible assets.</p> Signup and view all the answers

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.

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.