IAS 36 Impairment of Assets

1. Kap_Q14
A division of a company has the following balances in its financial statements:

Goodwill $700,000

Plant $950,000

Property $2,300,000

Intangibles $800,000

Other net assets $430,000

Following a period of losses, the recoverable amount of the division is deemed to be $4 million. A recent
valuation of the building showed that the building has market value of $2.5 million. The other net assets are at
their recoverable amount. The company uses the cost model for valuing property, plant and equipment.

To the nearest thousand, what is the balance on property following the impairment review?

$______________

2. Kap_Q15
To the nearest thousand, what is the balance on plant following the impairment review?

$______________

3. Kap_Q16
A vehicle was involved in an accident exactly halfway through the year. The vehicle cost $10,000 and had a
remaining life of 10 years at the start of the year. Following the accident, the expected present value of cash
flows associated with the vehicle was $3,400 and the fair value less cost to sell was $6,500.

What is the recoverable amount of the vehicle following the accident?

$______________

4. Kap_Q17
The net assets of Fyngle, a cash generating unit (CGU), are:
$

Property, plant and equipment 200,000

Allocated goodwill 50,000

Product patent 20,000

Net current assets (as net realisable value) 30,000

300,000

As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000.

What would be the value of Fyngle’s property, plant and equipment after the allocation of the impairment
loss?

$______________

5. Kap_Q18
Which of the following is NOT an indicator of impairment?

A. Advances in the technological environment in which as asset is employed have an adverse impact on its
future use
B. An increase in interest rates which increases the discount rate an entity uses
C. The carrying amount of an entity’s net assets is higher than the entity’s number of shares in issue multiplied
by its share price.
D. The estimated net realisable value of inventory has been reduced due to fire damage although this value is
greater than its carrying amount

6. FM0616_Q8/ FM0915_Q8 / FM0916_Q7/ FM0617_Q6

Patch acquired an item of equipment on 1 January 20X0 for $240,000. The asset is being depreciated over a 10
year useful life to a zero residual value. On 31 December 20X4 an impairment test was performed. The fair value
less costs of disposal of the equipment was measured at $88,000 at that date and the asset is expected to
generate net cash inflows of $12,000 per year for the next five years. The current cost of capital is 8%. A five
year annuity factor at 8% is 3.993.

How much should be charged to profit or loss as an impairment loss on 31 December 20X4?

$______________

7. QAB_Q6
An asset has a carrying amount of $1.2 million. Its replacement cost is $1 million, its fair value is $800,000 and
its value in use is $950,000. The legal expenses involved in selling the asset are estimated at $20,000.

What is the amount of the impairment loss suffered by the asset?

$______________

8. PT1_Q5
Using the following information calculate the total comprehensive income reported in the statement of profit
or loss and other comprehensive income.
$
(i) Reported group profit for the year 753,000
(ii) Dividends paid and declared 27,000
(iii) Fall in value of investment property held under fair value model 150,000
(iv) Upward revaluation of freehold land and buildings 68,000
(v) Provision for expected losses on contracts 34,000
(vi) Impairment losses on goodwill during the period 12,000

$______________
9. Bec_Q13.1
The following information relates to three assets held by a company:
Asset A B C

$000 $000 $000

Carrying amount 100 50 40

Fair value less costs of disposal 80 60 35

Value in use 90 70 30

What is the total impairment loss?

$______________

10. Bec_Q13.2
Dodgy has a property which is currently stated at a revalued carrying amount of$253,000. Due to a slump in
property prices the value of the property is currently only $180,000. The historical cost carrying amount of the
property is $207,000.

How should the above impairment in value be reflected in the financial statements in accordance with IAS 36
Impairment of Assets?

Profit or loss account Other comprehensive income

A. Dr $73,000 Cr $46,000

B. Dr $27,000 Dr $46,000

C. Dr $73,000 -

D. - Dr $73,000

11. Bec_Q13.3
Noddy has an item of equipment included in its statement of financial position at a carrying amount of $2,750.
The asset had been revalued several years ago. If the asset had not been revalued its carrying amount would
only have been $1,250.

An impairment review of the asset has been undertaken and it is estimated that the recoverable amount of the
asset is only $1,000.

Noddy has not made any annual transfers from the revaluation surplus to retained earnings.

How much of the impairment loss should be charged to other comprehensive income in accordance with IAS
36 Impairment of Assets?

$______________
12. Bec_Q13.4
In 20X3 Angry revalued at $360,000 a plot of land which had been purchased in 20X1 for $300,000 and
recognised a revaluation gain of $60,000.

In 20X4 Angry revalued to $130,000 a second plot of land which had been purchased for $100,000 in 20X2 and
recognised a further revaluation gain of $30,000.

In 20X5 Angry wishes to write down the value of the value of the first plot of land from $360,000 to $260,000
because of an impairment in its value due to changes in market prices.

There have been no other movements on the revaluation surplus.

What amount should be recognised in the financial statements for 20X5 for the impairment loss?

Profit or loss account ($) Other comprehensive income ($)

13. Bec_Q13.5
The following measures relate to a non-current asset:

1) Carrying amount $20,000

2) Net realisable value $18,000

3) Value in use $22,000

4) Replacement cost $50,000

What is the recoverable amount of the asset?

$___________-

14. FM1215_Q5/FM1216_Q4
A building cost $10m on 1 January 20X1. The building was held under the cost model and was being depreciated
over a 50 year life to a zero residual value from that date.

On 31 December 20X3, an impairment test was performed. At that date the building could be sold for $9m and
additional legal and agent fees of $100,000 would be incurred to sell it.

The building was expected to generate $450,000 of net cash inflows at each of the end of the next 5 years, at
which point it was expected to be sold for approximately $8m (net selling costs).

An appropriate discount rate is 6%. The present value of $1 receivable after 5 years at 6% can be taken as $0.75
and the present value of $1 receivable at the end of each of the five years can be taken as $4.21.

What is the impairment loss (if any) charged to profit or loss in the year ended 31 December 20X3 (to the
nearest $1,000)?

$______________
15. CE1_Q2
Metric owns an item of plant which has a carrying amount of $248,000 as at 1 April 2014. It is being depreciated
at 12½% per annum on a reducing balance basis.

The plant is used to manufacture a specific product which has been suffering a slow decline in sales. Metric has
estimated that the plant will be retired from use on 31 March 2017. The estimated net cash flows from the use
of the plant and their present values are:

Net cash flows Present values

$ $
Year to 31 March 2015 120,000 109,200
Year to 31 March 2016 80,000 66,400
Year to 31 March 2017 52,000 39,000
252,000 214,600

On 1 April 2015, Metric had an alternative offer from a rival to purchase the plant for $200,000.

At what value should the plant appear in Metric’s statement of financial position as at 31 March 2015?

$______________

16. FAR400_Feb 09_Q1

Elmo Bhd operates a special machine in producing toys for infants. The machine was bought in January 2004 for
RM5,000,000 and was expected to be used for 10 years with salvage value of RM50,000. Impairment test carried
out on the machine on 31 December 2008 revealed that its estimated present value in use was calculated to be
RM1,800,000 and its fair value less cost to sell was RM2,000,000.

What is the impairment loss of the machine on 31 December 2008?

$______________

17. FAR400_Feb 09_Q2

Which of the following statement is true about impairment of asset in accordance with IAS 36 Impairment of
Assets?

A All non current assets should be assessed for impairment when there is an indication that impairment occurs
B An impairment loss for an asset must be recognized immediately in income statement
C The asset’s value in use may be used to determine the recoverable amount of an asset if it is not possible to
determine the fair value less cost to sell
D A reversal of an impairment loss for goodwill shall be reversed if it meets the conditions set out in the
standard

18. FAR400_Apr 09_Q9

Seri Ayu Sdn Bhd owns and operates a specialized equipment to manufacture slimming products and cosmetics.
The machine was bought on 1 January 2005 at a cost of RM600,000. The estimated useful life of the equipment
is 10 years. Following a widespread adverse publicity of fake slimming products in the market, the demand for
all slimming products dropped substantially. An impairment test of its equipment was made on 31 December
2008. The estimated present value of the equipment in use and its fair value less cost to sell were RM170,000
and RM250,000 respectively. Determine the impairment loss for the year ended 31 December 2008.

$______________
19. SP’14_Q16
Riley acquired a non-current asset on 1 October 2009 at a cost of $100,000 which had a useful economic life of
ten years and a nil residual value. The asset had been correctly depreciated up to 30 September 2014. At that
date the asset was damaged and an impairment review was performed. On 30 September 2014, the fair value
of the asset less costs to sell was $30,000 and the expected future cash flows were $8,500 per annum for the
next five years. The current cost of capital is 10% and a five year annuity of $1 per annum at 10% would have a
present value of $3·79

What amount would be charged to profit or loss for the impairment of this asset for the year ended 30
September 2014?

$______________

20. D14_Q12
The net assets of Fyngle, a cash generating unit (CGU), are:
$
Property, plant and equipment 200,000

Allocated goodwill 50,000

Product patent 20,000

Net current assets (at net realisable value) 30,000

––––––––

300,000
––––––––

As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000.

What would be the value of Fyngle’s property, plant and equipment after the allocation of the impairment
loss?
$______________

21. D14_Q18
Which of the following is NOT an indicator of impairment?

A. Advances in the technological environment in which an asset is employed have an adverse impact on its
future use
B. An increase in interest rates which increases the discount rate an entity uses
C. The carrying amount of an entity’s net assets is higher than the entity’s number of shares in issue
multiplied by its share price
D. The estimated net realisable value of inventory has been reduced due to fire damage although this value
is greater than its carrying amount

22. D16_Q5
Indicate, by stating in the relevant boxes, whether the following statements regarding calculating the
impairment loss of an asset are correct or incorrect.

Assets should be carried at the lower of their carrying amount and recoverable amount Correct Incorrect

The recoverable amount of an asset is the higher of value in use and fair value less costs Correct Incorrect
of disposals