IAS 36 Impairment of Assets Quiz

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, which covers the impairment of assets and how to determine impairment losses. This quiz includes key concepts like recoverable amount, fair value, and cash-generating units. Enhance your knowledge in financial reporting and asset management.