Deck 10: Impairment of Assets

Question 1

Depending on individual circumstances,a cash- generating unit might comprise a single:

A)division
B)branch
C)subsidiary
D)all of the above

Answer 1

D

Question 2

The correct journal entry to record the reversal of an impairment loss is:

A)Debit Accumulated impairment losses Credit Impairment loss reversal (income)
B)Debit Asset Credit Impairment loss (expense)
C)Debit Impairment loss reversal (income)Credit Accumulated impairment losses
D)Debit Asset Credit Impairment loss reversal (income)

Answer 2

A

Question 3

External sources of information that would indicate possible impairment include

A)the carrying amount of the net assets of the entity is more than its market capitalisation
B)internal reporting indicates that the economic performance of an asset is,or will be,worse than expected
C)there is evidence of obsolescence or physical damage of an asset
D)none of the above

Answer 3

A

Question 4

The present value of the future cash flows expected to be derived from an asset or cash- generating unit is referred to as:

A)fair value
B)value in exchange
C)value in use
D)market value

Question 5

Moffatt Ltd had an item of equipment with a carrying amount (cost less accumulated depreciation)of $400 000.The fair value less costs to sell of the equipment is estimated at $380 000,while its value in use is calculated at $388 000.The amount of the impairment loss that would need to be recorded is:

A)$12 000
B)$0
C)$20 000
D)none of the above

Question 6

According to AASB 136,an impairment loss is recognised if:

A)an asset's carrying amount equals its recoverable amount
B)an asset's carrying amount exceeds its recoverable amount
C)an asset's recoverable amount exceeds its carrying amount
D)an asset's carrying amount exceeds its fair value

Question 7

Which of the following assets are not subject to AASB 136?

A)deferred tax assets
B)motor vehicles
C)inventories
D)both A and C

Question 8

The amount at which an asset is recognised after deducting any accumulated depreciation (amortisation)and accumulated impairment losses is known as:

A)fair value
B)recoverable amount
C)recognised amount
D)carrying amount

Question 9

The higher of an asset's fair value less costs to sell and its value in use is referred to as its:

A)fair value
B)carrying amount
C)recoverable amount
D)book value

Question 10

Which of the following statements is incorrect regarding the guidance given in AASB 136 on the composition of future cash flow estimates?

A)future cash flows are to be estimated based on the asset's current condition
B)estimates of the future cash flows can include inflows and outflows expected to arise from a future,uncommitted restructuring
C)estimates of future cash flows are not to include inflows or outflows from financing activities or income tax receipts or payments
D)estimates of the future cash flows should include projections of inflows from continuing use of the asset

Question 11

When an impaired asset is carried at a revalued amount in accordance with AASB 116,the impairment loss is:

A)not recorded
B)treated in the same way as a revaluation increase
C)treated in the same way as a revaluation decrease
D)recognised immediately as an expense

Question 12

The "costs to sell" of an asset would normally include:

A)regular repairs and maintenance
B)stamp duty
C)costs of removing the asset
D)both B and C

Question 13

Which of the following is the first step in recognising an impairment loss for a cash- generating unit?

A)determine the carrying amount of the net assets (including goodwill)of the relevant cash- generating unit
B)ascertain the recoverable amount of the relevant cash- generating unit
C)recognise the impairment loss on the cash- generating unit
D)none of the above

Question 14

AASB 136 requires which of the following to be reflected in the calculation of the present value of future cash flows:

A)the time value of money,represented by the current market risk- free rate of interest
B)an estimate of the future cash flows the entity expects to derive from the asset
C)the price for bearing the uncertainty inherent in the asset
D)all of the above

Question 15

Identify the external and internal sources of information that would indicate the possible impairment of an asset.

Question 16

For each material impairment loss recognised or reversed during the period for an individual asset,or a cash- generating unit,AASB 136 requires which of the following items of information to be disclosed?

A)the events and circumstances that led to the recognition or reversal of the impairment loss
B)whether the recoverable amount of the asset or cash- generating unit is its fair value less costs to sell or its value in use
C)the amount of the impairment loss recognised or reversed
D)all of the above

Question 17

Which of the following statements is incorrect regarding the recognition of an impairment loss?

A)when an impaired asset is recorded at cost,the impairment loss must be recognised immediately as an expense in the statement of comprehensive income
B)any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with AASB 116
C)when an impaired asset is recorded at cost,the impairment loss must be recognised as a revaluation decrease
D)when an impaired asset is recorded at cost,the impairment loss must be recognised immediately in profit or loss

Question 18

The smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets is referred to as a/an:

A)inflow- generating unit
B)asset- generating unit
C)cash- generating unit
D)none of the above

Question 19

Discuss the objective and major requirements of AASB 136.

Question 20

Which if the following is not an external source of information that would indicate possible impairment?

A)significant changes with an adverse effect on the entity have taken place during the period,or will take place in the near future,in the technological,market,economic or legal environment in which the entity operates
B)market interest rates or other market rates of return on investments have increased during the period
C)during the period,an asset's market value has declined significantly more than would be expected as a result of the passage of time or normal use
D)significant changes in the extent to which,or manner in which,an asset is used or is expected to be used have taken place during the period

Question 21

Explain the recognition of impairment losses under both the cost and revaluation models.

Question 22

Explain the concept of a cash- generating unit.

Question 23

Identify the external and internal indications required by AASB 136 to be considered in deciding whether an impairment loss should be reversed.

Question 24

Explain the AASB 136 requirements for the recognition of impairment losses for a cash- generating unit.

Question 25

Discuss the guidance given in AASB 136 for estimating future cash flows.

Question 26

Explain,with an example,the recoverable amount test.

Question 27

Discuss the AASB 136 requirements for the determination of the recoverable and carrying amounts of cash- generating units.