Chapter 4: IAS 36: Impairment of assets

2 OBJECTIVE BASED ANSWERS

01. (b) The recoverable amount is higher of value in use and fair value less cost
to sell and in case fair value cannot be measured reliably, the recoverable
amount is value in use.

02. (c) & (d) A decrease in interest rates would reduce the discount applied to future
cash flows in calculating the value in use, therefore increasing the value
in use. An increase in market values will lead to the asset value
increasing rather than being impaired.

03. (d) The entity’s market capitalisation would not be reflected within the values
on the statement of financial position.

04. (b) Value in use of Rs.38,685 is lower than fair value less costs to sell of
Rs.43,000, so recoverable amount is Rs.43,000 and impairment is
Rs.60,750 – Rs.43,000 = Rs.17,750.

05. (d) Although the estimated net realisable value is lower than it was (due to
fire damage), the entity will still make a profit on the inventory and thus it
is not an indicator of impairment.

06. (a) Tax and finance costs are not cost of disposal.

07. (b) Asset may not be impaired even after damage. Impairment loss is excess
of carrying amount over recoverable amount.

08. (b) This is definition of value in use

09. (d) (a), (b) and (c) are excluded from scope of IAS 36 as the prudence
mechanism is already incorporated in the relevant standards of these
items.

10. (d) Item 1 is untrue. An annual impairment review is only required for
intangible assets with an indefinite life.

11. (c) The higher of fair value less costs of disposal and value in use.

12. (a)

Fair value – costs of disposal

(780,000 – 25,000) Rs. 755,000

Value in use:

300,000 × 1 / 1.08 277,780

300,000 × 1 / 1.082 257,200

300,000 × 1 / 1.083 238,150

Rs. 773,130

Recoverable amount is Rs. 773,130 and carrying amount is Rs. 850,000,

so impairment is Rs. 76,870.

© Emile Woolf International 181 The Institute of Chartered Accountants of Pakistan

Financial accounting and reporting I

13. (a & d) The other options are internal indicators of impairment.

14. (c)
Rs.

Fair value less costs of disposal (2.7m – 50,000) 2,650,000

Value in use 2,600,000

Recoverable amount is therefore: 2,650,000

Impairment loss (balancing figure) 350,000

Carrying amount 3,000,000

15. (b) Cash flows related to taxations are ignored while calculating value in use.

16. Rs. 30 million 20 + Nil + 10 = Rs. 30 million

17. Rs. 140 million 60 + Nil + Nil +80 = Rs. 140 million

18. Rs. 6.5 million The recoverable amount of an asset is the higher of its value in use
(being the present value of future cash flows) and fair value less costs to
sell. Therefore the recoverable amount is Rs. 6.5 million.

19. Rs. 17.785

million Rs. m

Cost 1 October 2019 100

Depreciation (100 /10 x 5 years) (50)

Carrying amount 50

The recoverable amount is the higher of fair value less costs to sell (Rs.
30 million) and the value in use (Rs. 8.,5 x 3.79 = Rs. 32.215).
Recoverable amount is therefore Rs. 32.215.

Rs. m

Carrying amount 50

Recoverable amount (32.215)

Impairment to statement of profit or loss 17.785

20. Rs. Is the lower of its carrying amount (Rs. 217 million) and recoverable
214,600,000 amount (Rs. 214.6 million) at 31 March 2015.
Recoverable amount is the higher of value in use (Rs. 214.6 million) and
fair value less costs to (Rs. 200 million).
Carrying amount = Rs. 217 million (248 million – (248 million × 12.5%))
Value in use is based on present values = Rs. 214.6 million

21. (b)

© Emile Woolf International 182 The Institute of Chartered Accountants of Pakistan

 Chapter 4: IAS 36: Impairment of assets

22. (c)

23. (a)

24. (c)

25. (d)

26. (a)

27. (d)

28. (b)

29. (c)

30. (b)

31. (c)

32. (c)

33. (b)

34. (d)

35. (b) the recoverable amount is the value in use

36. (a) & (d) An unusually significant fall in the market value of one or more assets & An
increase in market interest rates used to calculate value in use of the
assets

37. (b) Income tax payments

38. (b) Rs. 390,000

39. (a) pre-tax rate that reflects the market assessment of time value of money
and risks specific to the asset

© Emile Woolf International 183 The Institute of Chartered Accountants of Pakistan