Recognition of an impairment loss

Learning objectives

• Calculate the impairment loss of an individual asset as the excess of its carrying amount over its recoverable amount.L1, L2
• Recognise the loss immediately in profit or loss and recognise that a liability is recognised for any excess only if required by another Standard.L1, L2, L3

Normative references

• IAS 36 §58States that paragraphs 59 to 64 set out the requirements for recognising and measuring impairment losses for an individual asset other than goodwill, CGUs and goodwill being dealt with afterwards.
• IAS 36 §59If the recoverable amount is less than the carrying amount, the asset is reduced to its recoverable amount and that reduction is an impairment loss.
• IAS 36 §60An impairment loss is recognised immediately in profit or loss, except for a revalued asset, for which it is treated as a revaluation decrease in accordance with the applicable Standard.
• IAS 36 §62If the estimated loss is greater than the carrying amount, a liability is recognised only if required by another Standard.

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

24 questions

• At the year-end, Corvane tests a laser-cutting machine with a carrying amount of {carrying_amount}. Its fair value (IFRS 13, given) is {fair_value}. A sale would involve {legal_fees} of legal costs and {removal_costs} of removal; Corvane also estimates at {reorganisation_costs} the reorganisation of its workshop that would follow the disposal. None of these costs is recognised as a liability. Value in use, calculated separately, is {value_in_use}. Determine the fair value less costs of disposal, the recoverable amount and the impairment loss.L3
• Aubrac Logistique owns a fleet of order-picking robots carried at {carrying_amount}. An independent valuer sets its fair value under IFRS 13 at {fair_value} (given), which is more than the carrying amount. However, disposing of the fleet would cost {stamp_duty} of stamp duty, {legal_fees} of lawyer's fees and {preparation_costs} of refurbishment directly required for the sale. A dismantling adviser has already invoiced {recognised_consultant_fee}, an amount recognised as a payable at the year-end. Value in use is {value_in_use}. What are the fair value less costs of disposal, the recoverable amount and any impairment loss?L3
• Orbelis, an aerospace equipment manufacturer, built a unique test bench for its own needs, which shows indications of impairment. No transaction on comparable equipment can be observed and the valuer consulted states that there is no reliable basis for estimating the price at which an orderly transaction between market participants would take place. The carrying amount of the bench is 400,000 and its value in use is 340,000. What should Orbelis do?L3
• The Ardéco printing works is testing a rotary press with a carrying amount of {carrying_amount} that will be used for two more years. The expected net operating cash flows, received at year-end, are {cash_flow_year_1} for year 1 and {cash_flow_year_2} for year 2. At the end of year 2, reselling the press should provide a net cash flow of {net_disposal_flow}. The discount rate (given) is {discount_rate}. Current fair value less costs of disposal is {fvlcd}. Calculate value in use, recoverable amount and the impairment loss.L2
• A veterinary clinic, Vetalpe, is reviewing a scanner carried in its statement of financial position at {carrying_amount}. It has two years of use left. The finance department expects {operating_flow_1} of net operating cash at the end of the first year, then {operating_flow_2} at the end of the second, when the device would be sold to a refurbisher for an amount net of costs of disposal of {scrap_proceeds_net}. The discount rate provided is {discount_rate}. A broker currently estimates the scanner's fair value less costs of disposal at {fvlcd}. Determine value in use, recoverable amount and the impairment loss.L2
• True or false? For a machine measured under the cost model, the impairment loss is recognised immediately in profit or loss.L1
• True or false? When the estimated amount of the impairment loss exceeds the carrying amount of the asset, the entity always recognises a liability for the excess.L1
• For an individual asset, what does the impairment loss correspond to?L1
• At the year-end, an industrial furnace of Lumarec, measured at cost, has a carrying amount of 500,000. The impairment test shows a recoverable amount of 520,000. What follows?L2
• Which of the following statements on recognising an impairment loss on an individual asset are correct? (several answers)L2
• Arvelo holds a grinding machine acquired for {cost}, whose accumulated depreciation amounts to {accumulated_depreciation} at the year-end. An indication of impairment led to an estimate of its recoverable amount of {recoverable_amount}. What is the amount of the impairment loss?L1
• At Belcastel, a refrigerated truck is carried at a cost of {cost} less {accumulated_depreciation} of accumulated depreciation. After losing a haulage contract, the entity estimates its fair value less costs of disposal at {fvlcd} and its value in use at {value_in_use}. Determine the impairment loss to recognise.L2
• Corvane measures its machines under the cost model. At the year-end, an injection moulding press has a carrying amount of {carrying_amount} and a recoverable amount of {recoverable_amount}. Record the impairment entry.L2
• A games publisher, Pixalune, acquired a patent on a graphics engine, which it carries at cost less amortisation. The arrival of a competing technology leads it to estimate the recoverable amount of the patent at {recoverable_amount}, for a carrying amount of {carrying_amount}. Record the accounting effect at the year-end.L2
• Kervela operates a depot measured at cost with a carrying amount of 40,000. Its estimates show that the calculated impairment loss would reach 55,000, as the depot is expected to generate net cash outflows. No other standard requires a liability to be recognised in this situation (given). How should this situation be treated?L3
• Talmont measures its equipment at cost. An assembly line with a carrying amount of 210,000 has a recoverable amount of 168,000. To protect the year's profit, the finance director proposes charging the loss of 42,000 to reserves. What should you answer?L3
• Ombrelle tests three assets measured at cost, whose recoverable amount can be determined individually (given). Asset A: carrying amount {carrying_amount_a}, recoverable amount {recoverable_amount_a}. Asset B: carrying amount {carrying_amount_b}, recoverable amount {recoverable_amount_b}. Asset C: carrying amount {carrying_amount_c}, recoverable amount {recoverable_amount_c}. What total impairment loss is recognised in profit or loss?L3
• A building is carried under the revaluation model. How is its impairment loss recognised?L2
• An office building of Belmonde is measured under the revaluation model and has just been revalued to its fair value at the reporting date; its revaluation surplus amounts to 90,000. The departure of its main tenant reduces its value in use and, as its costs of disposal are not negligible, its recoverable amount comes out 35,000 below its carrying amount. Out of prudence, the finance director wishes to recognise the loss in profit or loss. What is the correct effect?L3
• A cable car at the Valmorine resort cost {cost}. It is depreciated on a straight-line basis over {useful_life}, with a residual value of {residual_value}. After {years_elapsed} of operation, a lasting fall in visitor numbers leads to an estimated recoverable amount of {recoverable_amount}; the residual value and the total useful life are unchanged. Compute the impairment loss, then the annual depreciation charge for the following years.L3
• Brisach Imprimerie tests its Offset Printing CGU, which comprises goodwill of {goodwill_ca}, printing equipment of {equipment_ca} and a building of {building_ca} (carrying amounts). The recoverable amount of the unit is {recoverable_amount}. No individual floor is binding and all assets are measured at cost. Record the impairment entry.L2
• The restaurant Le Comptoir Sabline, acquired by a restaurant group, is a CGU to which goodwill of {goodwill_ca} is allocated. It also comprises kitchen equipment ({kitchen_ca}) and dining-room improvements ({improvements_ca}), measured at cost. The closure of a nearby office district reduces its recoverable amount to {recoverable_amount}. No individual floor is binding. Record the impairment loss.L3
• The logistics hub of Ostrava Distribution is a CGU comprising goodwill of {goodwill_ca}, a warehouse of {warehouse_ca} and forklift trucks of {forklifts_ca} (carrying amounts, cost model). The recoverable amount of the unit is {recoverable_amount}. The warehouse's fair value less costs of disposal is {warehouse_fvlcd}; no floor other than zero can be determined for the forklifts. Record the unit's impairment loss.L4
• The Valbonne Spa CGU of Aquaval includes a building measured under the revaluation model, with a revaluation surplus of 40,000. The allocation of the unit's impairment loss assigns a share of 25,000 to the building. How is this share treated?L3