Questions and Answers
What are the two types of sources that an entity should assess to ascertain if an impairment loss in prior periods no longer exists or has decreased?
External and internal sources
According to the content, what are examples of external sources that may indicate a reversal of impairment loss? (Select all that apply)
Adjusting the impairment loss will result in the estimate of the carrying amount of the asset to increase to its _______.
recoverable amount
Match the following disclosure requirements:
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During an impairment review, what is the calculated impairment loss if the recoverable amount of a CGU is P50M and the carrying amount is P66M?
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According to PAS 36, which of the following are not covered under impairment accounting?
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Impairment loss is the amount by which the carrying amount of an asset exceeds its recoverable amount.
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Define 'Value in Use' as per PAS 36.
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If an impairment loss is recognized for a Cash Generating Unit (CGU), the loss shall be allocated to reduce the carrying amount of the _______ of the unit.
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Match the following concepts with their definitions:
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Study Notes
Scope of PAS 36
- Applies to impairment of all assets except:
- Inventories
- Contract assets and related items
- Deferred tax assets
- Assets arising from employee benefits
- Financial assets
- Investment property measured at fair value
- Biological assets at fair value
- Insurance contracts
- Non-current assets classified as held for sale
Impairment Loss, Recoverable Amount, and Value in Use
- Impairment loss: the amount by which the carrying amount of an asset or cash-generating unit (CGU) exceeds its recoverable amount
- Recoverable amount: the higher of an asset's fair value less costs of disposal and its value in use
- Value in use: the present value of the future cash flows expected to be derived from an asset or CGU
Identifying an Asset for Impairment
- Assess at the end of each reporting period whether there is any indication of impairment
- External sources of information that may indicate impairment:
- Observable indications of a decline in asset value
- Significant changes with an adverse effect on the entity
- Market interest rates or other market rates of return on investments
- Carrying amount of net assets exceeds market capitalization
- Internal sources of information that may indicate impairment:
- Evidence of obsolescence or physical damage
- Significant changes in the extent or manner of asset use
- Evidence of worse-than-expected economic performance
- Other internal indicators
Impairment Loss
- Impairment loss = carrying amount - recoverable amount
- Allocate impairment loss to reduce the carrying amount of the assets of the CGU in the following order:
- First, to goodwill
- Then, to other assets of the CGU on a pro-rata basis
Reversal of Impairment Loss
- Allowed for CGU
- Allocate reversal to the assets of the CGU, except goodwill, on a pro-rata basis
- Carrying amount of the asset shall not increase above the lower of:
- Recoverable amount (if determinable)
- Carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior periods
Fair Value and Value in Use
- Fair value: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
- Value in use: the present value of the future cash flows expected to be derived from an asset or CGU
- Elements to be reflected in the calculation of an asset's value in use:
- Estimate of future cash flows
- Expectations about possible variations in the amount or timing of those future cash flows
- Time value of money
- Price for bearing the uncertainty inherent in the asset
- Other factors such as illiquidity
Cash-Generating Unit (CGU)
- The smallest identifiable group of assets to which independent cash flows can be identified and measured
- Carrying amount of a CGU includes:
- Carrying amount of assets that can be attributed directly or allocated on a reasonable and consistent basis
- Does not include any recognized liability, unless the recoverable amount of the CGU cannot be determined without consideration of that liability
Reversal of Impairment Loss for CGU
- Reversal of impairment loss is allowed for a CGU
- Allocate reversal to the assets of the CGU, except goodwill, on a pro-rata basis
- Carrying amount of the asset shall not increase above the lower of:
- Recoverable amount (if determinable)
- Carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior periods
Disclosures
- General disclosures:
- Impairment losses recognized and the line items of the statement of comprehensive income in which those impairment losses are included
- Reversals
- Impairment losses on revalued assets
- Additional disclosures:
- Events and circumstances that led to the reversal of impairment loss
- Amount of impairment loss recognized or reversed
- Individual assets:
- Nature of the asset
- Segment information
- CGU:
- Description
- Recognition or reversal of impairment loss
- If aggregation, and there are changes
- CGU recoverable amount
- If the recoverable amount is the fair value less cost of disposal, the entity shall disclose the level of the fair value hierarchy within which the fair value measurement of the asset is classified
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Description
This quiz covers the scope and application of PAS 36 standard for impairment of assets, excluding certain assets such as inventories and financial assets. It also delves into impairment loss, recoverable amount, and value in use.
