Deck 11: Impairment of Assets

Question 1

At reporting date, the carrying amount of a cash-generating unit was considered to be have been impaired by $900. The unit included the following assets:
$\bullet$ Land $4000;
$\bullet$ Plant $3000;
$\bullet$ Goodwill $500.
The amount of impairment allocated to land is:

A) $200;
B) $229;
C) $300;
D) $514.

Answer 1

$229;

Question 2

At reporting date Guilder Limited estimated an impairment loss of €50 000 against its single cash-generating unit. The company had the following assets:
$\bullet$ Headquarters Building €100 000;
$\bullet$ Plant €60 000;
$\bullet$ Equipment €40 000.
The net carrying amount of Plant after allocation of the impairment loss is:

A) €60 000;
B) €45 000;
C) €35 000;
D) €10 000.

Answer 2

€45 000;

Question 3

An appropriate journal entry to recognise an impairment loss under the cost model is:

A) DR $\quad$ Accumulated impairment losses
CR $\quad$ Impairment loss
B) DR $\quad$ Accumulated impairment losses
CR $\quad$ Asset revaluation (Equity)
C) DR $\quad$ Impairment loss
CR $\quad$ Accumulated depreciation and impairment losses
D)
DR $\quad$ Revenue
CR $\quad$ Impairment loss

Answer 3

DR $\quad$ Impairment loss
CR $\quad$ Accumulated depreciation and impairment losses

Question 4

When an asset is measured using the revaluation model, any impairment loss is treated as:

A) a revaluation decrement;
B) a revaluation increment;
C) a set-off against depreciation expense;
D) an addition to depreciation expense.

Question 5

In allocating an impairment loss, an entity shall not reduce the carrying amount of an asset below the highest of:

A) value in use and zero;
B) present value and value in use;
C) cost and market value;
D) initial cost and fair value.

Question 6

Constructor Limited estimated an impairment loss of €500 against its single cash-generating unit. The company had the following assets:
$\bullet$ Headquarters Building €1000;
$\bullet$ Construction Plant €600;
$\bullet$ Equipment €400.
The net carrying amount of the Equipment after allocation of the impairment loss is:

A) €200;
B) €400;
C) €300;
D) €0.

Question 7

At reporting date, the carrying amount of a cash-generating unit was considered to be have been impaired by $800. The unit included the following assets:
$\bullet$ Land $4000;
$\bullet$ Plant $3000;
$\bullet$ Goodwill $1000.
The carrying amount of Goodwill after the impairment loss is allocated is:

A) $0;
B) $200;
C) $900;
D) $1000.

Question 8

Candy Limited expected future cash flows from the use of Equipment as follows:
$\bullet$ End of Year 1 £4000;
$\bullet$ End of Year 2 £5000;
$\bullet$ End of Year 3 £2000.
The discount rate was determined as 5%. The value in use of the equipment is:

A) £10 073;
B) £10 576;
C) £11 000;
D) £11 550.

Question 9

If an entity does not expect to recover the carrying amount of an asset, the entity has incurred:

A) an impairment loss;
B) a depreciation expense;
C) an amortisation cost;
D) a loss on disposal.

Question 10

The impairment test must be applied to tangible assets:

A) at each balance date;
B) every three years;
C) at each reporting date including interim reporting dates such as half-year;
D) only if there is an indication that the asset may be impaired.

Question 11

When evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to recoverable amount. Recoverable amount is the higher of:

A) initial cost: and, fair value;
B) fair value less costs to sell: and, value in use;
C) original cost: and, net present value;
D) value in use: and, original cost.

Question 12

Nguyen Limited estimated that it would receive future cash flows from the use of equipment:
$\bullet$ End of Year 1 £10 000
$\bullet$ End of Year 2 £50 000
$\bullet$ End of Year 3 £20 000
The discount rate was determined as 8%. The 'value in use' of the equipment is:

A) £80 000;
B) £73 600;
C) £68 000;
D) £63 500.

Question 13

Hayfield Limited recognised an impairment loss of $200 against a cash-generating unit containing the following assets:
$\bullet$ Buildings $500;
$\bullet$ Roads $300;
$\bullet$ Equipment $600.
The net carrying amount of the Roads after allocation of the impairment loss is:

A) $100;
B) $235;
C) $257;
D) $300.

Question 14

Which of the following assets need to be tested for impairment every year?
I intangible assets with indefinite useful lives
II intangible assets not yet available for use
III intangible assets accounted for under the revaluation method
IV goodwill acquired in a business combination

A) I, II and III only;
B) II, III and IV only;
C) I, II and IV only;
D) I, III and IV only.

Question 15

An impairment loss occurs when:

A) the recoverable amount of an asset exceeds the carrying amount;
B) the carrying amount of an asset exceeds the recoverable amount;
C) the asset has a zero residual value;
D) the recoverable amount of an asset exceeds its initial cost.

Question 16

When goodwill is acquired under a business combination it is subject to an impairment test every:

A) year;
B) two years;
C) three years;
D) five years.

Question 17

According to IAS 36 Impairment of Assets, the recoverable amount test requires an entity to compare the fair value an asset less costs to sell, with:

A) the amount obtainable from the sale of the asset;
B) the costs directly attributable to the liquidation of the asset;
C) its disposal value;
D) its value in use.

Question 18

Where an asset is measured using the cost model, any impairment loss is:

A) accumulated in a separate 'accumulated impairment losses' account;
B) set off against the balance of revenue;
C) taken directly to equity;
D) added to the balance of the accumulated depreciation account.

Question 19

Jam Pty Ltd has two cash generating units. CGU A had a carrying amount of €700 and value in use of €750. CGU B has a carrying amount of €900 and a value in use of €800. The carrying amount of the head office assets is €400. CGUs A and B utilise the head office services equally. The impairment loss for CGU A is:

A) €0;
B) €50;
C) €150;
D) €350.

Question 20

Value in use is:

A) amount obtainable from disposal of an asset excluding any selling costs;
B) initial cost of an asset less any expected disposal costs;
C) incremental costs directly attributable to disposal of an asset;
D) the present value of future cash flows expected to be derived from an asset.

Question 21

The carrying amount of a cash-generating unit was considered to be impaired. The impairment loss was €600. The cash-generating unit included the following assets:
$\bullet$ Goodwill €1000;
$\bullet$ Buildings €2000;
$\bullet$ Plant and Equipment €1500.
The carrying amount of Goodwill after allocation of the impairment loss is:

A) €0;
B) €867;
C) €600;
D) €400.

Question 22

During 2016 Sacco Limited, estimated that the carrying amount of goodwill was impaired and wrote it down by €50 000. In 2017, the company reassessed goodwill was decided that the old acquired goodwill still existed. The appropriate accounting treatment in 2017 is:

A) reverse the previous goodwill impairment loss;
B) recognise the revalued amount of goodwill by an adjustment against the asset revaluation surplus account;
C) ignore the reversal as it is prohibited by IAS 36 Impairment of Assets;
D) increase goodwill by an adjustment to retained earnings.

Question 23

In relation to the impairment of assets, IAS 36 Impairment of Assets, requires the following disclosures for each class of assets:
I The line of the statement of profit or loss and other comprehensive income in which impairment losses are included.
II The amount of reversals of impairment losses during the period.
III The amount of impairment losses recognised directly in other comprehensive income.
IV The beginning and ending balances of any 'provision for impairment' account.

A) I, II, III and IV;
B) I, II and III only;
C) II and IV only;
D) IV only.

Question 24

The impairment test for goodwill must be conducted:

A) annually, at balance date;
B) once every three years at balance date;
C) only if it is reasonable to expect that goodwill has been impaired;
D) annually, at the same time every year.

Question 25

Which of the following is required to be disclosed for each class of assets?
I the amount of impairment losses recognised in profit or loss during the period
II the amount of reversals of impairment losses recognised in profit or loss during the period
III the amount of impairment losses on revalued assets recognised directly in equity during the period; and
IV the amount of reversals of impairment losses on revalued assets recognised directly in other comprehensive income during the period.

A) III and IV only;
B) I, II, III and IV;
C) I, II and III only;
D) I and II only.

Question 26

When assessing the recoverable of assets that have previously been subject to an impairment loss, which of the following indicators assist in providing external evidence that an impairment loss has reversed:

A) the asset's market value has decreased significantly during the period;
B) significant changes with an adverse effect on the entity have taken place;
C) market interest rates have decreased during the period;
D) internal reporting sources indicate that the economic performance of the asset will not be as good as expected.

Question 27

Which of the following is NOT correct in relation to the reversal of an impairment loss of an individual asset?

A) When reversing an impairment loss the carrying amount cannot be increased to an amount in excess of the carrying amount that would have been determined had no impairment loss been recognised;
B) For a depreciable asset there needs to be a calculation of carrying amount using the depreciation variables applied before the impairment loss to determine what the carrying amount would have been if there had been no impairment loss;
C) If the individual asset is recorded under the cost model, then the increase in the carrying amount is recognised immediately in profit or loss;
D) Where the recoverable amount is less than the carrying amount of an individual asset, the reversal of a previous impairment loss requires adjusting the carrying amount of the asset to recoverable amount.

Question 28

Under IAS 36 Impairment of Assets, the impairment testing of goodwill occurs at the:

A) level of the entity itself;
B) combined segments level;
C) operating division level;
D) lowest level at which goodwill is allocated to cash-generating units.