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Questions and Answers
Impairment is the fall in market value of an asset so that the recoverable amount is now less than the carrying amount in the statement of financial ______
position
There is an established principle that an asset shall not be carried above the recoverable ______
amount
Indication of Possible impairment from external sources includes market value declines, negative changes in technology, markets, economy, or ______
laws
Cashflow projections shall be based on the most recent budgets or financial forecasts up to ______ years unless justified.
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The recoverable amount of an asset is the fair value less the cost of disposal or value in use; whichever is ______
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Cashflow projections beyond 5 years shall be estimated by extrapolating the 5-year projections using a steady or ______ growth rate each subsequent year unless an increasing rate can be justified.
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Fair Value Hierarchy under PFRS 13 (Paragraph 72) categorizes inputs as quoted prices in an active market for identical assets, observable inputs either directly or indirectly, and unobservable inputs for the ______
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Recognition of Impairment Loss occurs when Carrying Amount is GREATER THAN Recoverable Amount. The Impairment Loss is recorded as ______.
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Cost of disposal is an incremental cost directly attributable to the disposal of an asset or cash-generating units, excluding the finance cost and income tax ______
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Impairment losses recognized for an asset in prior years shall be reversed if there has been a change in the estimate of the ______ amount.
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According to PAS 36, any reversal of an impairment loss on a revalued asset shall be credited to income to the extent that it reverses a previous revaluation decrease and any excess credited directly to the ______ surplus.
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Journal entries for the reversal of an Impairment Loss include Accumulated depreciation ______ and Gain on reversal of Impairment ______.
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Study Notes
Asset Impairment
- Impairment occurs when an asset's market value falls, making its recoverable amount less than its carrying amount in the financial statement.
- An asset should not be carried above its recoverable amount, as per an established principle.
Indications of Impairment
- External sources indicating possible impairment include:
- Market value declines
- Negative changes in technology, markets, economy, or law
- Other indications may also be considered.
Cash Flow Projections
- Cash flow projections should be based on the most recent budgets or financial forecasts up to five years, unless justified.
- Projections beyond five years should be estimated by extrapolating the five-year projections using a steady or declining growth rate each subsequent year, unless an increasing rate can be justified.
Recoverable Amount
- The recoverable amount of an asset is the higher of its fair value less cost of disposal or value in use.
- Fair value is categorized into a hierarchy of inputs under PFRS 13:
- Quoted prices in an active market for identical assets
- Observable inputs either directly or indirectly
- Unobservable inputs
Recognition of Impairment Loss
- Impairment loss is recognized when the carrying amount exceeds the recoverable amount.
- The impairment loss is recorded as an expense.
Cost of Disposal
- Cost of disposal is an incremental cost directly attributable to the disposal of an asset or cash-generating units, excluding finance costs and income tax expenses.
Reversal of Impairment Loss
- Impairment losses recognized in prior years can be reversed if there is a change in the estimate of the recoverable amount.
- Reversal of impairment loss on a revalued asset is credited to income to the extent that it reverses a previous revaluation decrease, with any excess credited directly to the revaluation surplus.
Journal Entries for Reversal of Impairment Loss
- Journal entries for the reversal of an impairment loss include:
- Debit: Accumulated depreciation
- Credit: Gain on reversal of impairment loss
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Description
Learn about the concept of impairment in the context of fixed assets, where the market value of an asset falls below the recoverable amount. Understand how impairment is accounted for and the basic principle that an asset should not be carried above the recoverable amount.
