Key definitions

Learning objectives

• Distinguish carrying amount, recoverable amount, fair value less costs of disposal, value in use, impairment loss, cash-generating unit and corporate assets.L1, L2

Normative references

• IAS 36 §6Definitions: carrying amount (the amount at which an asset is recognised after deducting accumulated depreciation and accumulated impairment losses); cash-generating unit, CGU (the smallest identifiable group of assets generating cash inflows largely independent of those from other assets or groups of assets); corporate assets (assets other than goodwill that contribute to the future cash flows of both the unit under review and other units); costs of disposal (incremental costs directly attributable to disposing of an asset or CGU, excluding finance costs and income tax expense); depreciable amount (cost or substituted amount, less residual value); depreciation (the systematic allocation of the depreciable amount over the useful life); fair value (by reference to IFRS 13); impairment loss (the excess of carrying amount over recoverable amount); recoverable amount (the higher of fair value less costs of disposal and value in use); useful life (the expected period of use or the expected number of production units); value in use (the present value of the future cash flows expected from the asset or CGU).

Original summaries of the paragraphs (reference register), never a quotation of the standard.

12 questions

• True or false? The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use.L1
• True or false? An impairment loss is the amount by which the recoverable amount of an asset exceeds its carrying amount.L1
• Which definition matches carrying amount as used in IAS 36?L1
• Which of these descriptions matches value in use?L1
• Quaranne Ltd is planning to sell a machine. Which of these items is a cost of disposal as defined in IAS 36?L2
• True or false? The value in use of an asset is determined using the assumptions that market participants would adopt, regardless of the entity's own expectations.L2
• Which definition matches a cash-generating unit (CGU)?L2
• Hauterive Ltd operates three plants, each a cash-generating unit, and an IT centre that serves all three plants. How should the IT centre be described under IAS 36?L2
• Which of the following statements about the carrying amount of a depreciable asset are correct? (Several answers possible.)L1
• Which of the following statements correctly distinguish value in use from fair value less costs of disposal? (Several answers possible.)L2
• True or false? The depreciable amount of an asset is its cost, or the amount substituted for cost in the financial statements, less its residual value.L2
• At 31 December 20X1, Lornac Ltd holds a bottling line with a carrying amount of EUR 1,000,000. Its fair value less costs of disposal is EUR 850,000 and its value in use EUR 920,000. What is the recoverable amount of the line?L2