Chapter 33-Impairment of Assets

QUESTIONS
1.
2.
3.
4.
5.
6.
7.

State the general principle on impairment of asset.

Define an impairment loss.
What is the recoverable amount of an asset?
Define fair value.
Define cost of disposal.
Explain value in use.
What are the elements that are reflected in the calculation of value
in use?
8. What are the future cash flow included in the value in use?
9. What are the cash flows that are not included in value in use?
10.
Explain the appropriate discount rate in calculating value in
use.
11.
What are the external sources of information indicating
impairment?
12.
What are the internal sources of information indicating
impairment?
13.
Explain impairment of a cash generating unit.
14.
Explain reversal of an impairment loss.
15.
Compare PFRS for SMEs and full PFRS in relation to
impairment of asset.

Problem 33-1 Multiple choice (IFRS)

1. Which of the following statements best describes the term
impairment loss?
a. The removal of an asset from the statement of financial position.
b. The amount by which the carrying amount of an asset exceeds the
recoverable amount.
c. The systematic allocation of cost less residual value over the useful life of
an asset.
d. The amount by which the recoverable amount of an asset exceeds the
carrying amount.
2. What is the recoverable amount of an asset?
a.
b.
c.
d.

Fair value less cost of disposal

Value in use
Fair value less cost of disposal or value in use, whichever is higher
Fair value less cost of disposal or value in use whichever is lower

3. If the fair value less cost of disposal cannot be determined

a.
b.
c.
d.

The
The
The
The

asset is not impaired.

recoverable amount is the value in use.
net realizable value is used.
carrying amount of the asset remains the same.

4. If the net asset is to be disposed of

a.
b.
c.
d.

The
The
The
The

recoverable amount is the fair value less cost of disposal

recoverable amount is the value in use
asset is not impaired
recoverable amount is the carrying amount

5. Which of the following best describes value in use?

a. The present value of estimated future cash flows expected to arise from
the continuing use of an asset and from the ultimate disposal
b. The amount of cash or cash equivalents that could currently be obtained
by selling an asset in an orderly disposal
c. The amount which an entity expects to obtain for an asset at the end of
the useful life
d. The price that would be recovered to sell an asset in an orderly
transaction between market participants at the measurement date
6. Which of the following is not relevant in determining value in use?
a. The expected future cash flows from the asset
b. The carrying amount of the asset
c. Expectation about possible variation in the amount and timing of future
cash flows
d. The time value of money
7. The estimates of future cash flows in calculating value in use include
all of the following, except
a. Cash inflows from continuing use of the asset
b. Cash outflows incurred to generate the cash inflows from the continuing
use of the asset
c. Net cash flow from the disposal of the asset at the end of the useful life
d. Cash outflows for income tax
8. What is the allocation of an impairment loss recognized for a cash
generating unit?
a. Across the asset of the unit based on carrying amount.
b. Across the assets of the unit based on fair value
c. First, to any goodwill, and the balance to the other assets prorate based
on fair value.
d. First, to any goodwill and the balance to the other assets prorate based on
carrying amount

9. An impairment loss on an intangible asset is the excess of

a.
b.
c.
d.

Carrying amount over expected future net cash flows

Carrying amount over recoverable amount
Recoverable amount over expected future net cash flows
Carrying amount over fair value

10.
Which of the following statements is incorrect regarding
recovery of the impairment for an intangible asset?
a. After a recovery of impairment has been recognized, the carrying amount
of the asset is the higher between fair value less cost of disposal and
value in use.
b. No recovery of impairment is allowed for goodwill
c. A recovery of impairment is reported as other income.
d. The amount of the recovery is limited to the carrying amount of the asset
that would have been reported had no impairment occurred.