Impairment of Assets (IAS 36) Flashcards

A set of vocabulary flashcards covering the key principles, definitions, and measurement rules of IAS 36 - Impairment of Assets, including formulas and indicator types of indicators.

IAS 36

The International Accounting Standard that ensures an entity's assets are carried at no more than their recoverable amount and provides guidance on identifying, measuring, and accounting for impairment losses.

Impairment

A condition that occurs when the carrying amount of an asset exceeds its recoverable amount.

Carrying Amount

The amount at which an asset is recognized in the statement of financial position after deducting accumulated depreciation or amortization and accumulated impairment losses, calculated as $\text{Carrying Amount} = \text{Cost} - \text{Accumulated Depreciation} - \text{Accumulated Impairment Losses}$.

Recoverable Amount

The higher of an asset's Fair Value Less Costs of Disposal $\text{(FVLCD)}$ and its Value in Use.

Cash-Generating Unit (CGU)

The smallest identifiable group of assets that generates cash inflows that are largely independent from the cash inflows of other assets or groups of assets.

Value in Use

The present value of the future cash flows expected to be derived from an asset or cash-generating unit, calculated by discounting estimated inflows and outflows to their present value.

Fair Value Less Costs of Disposal (FVLCD)

The amount obtainable from the sale of an asset in an orderly transaction between market participants, minus the costs directly attributable to the disposal of the asset.

Disposal Costs

Incremental costs directly attributable to the sale of an asset, including advertising costs, legal fees, transport costs, and broker commissions.

Depreciation

The systematic allocation of the depreciable amount of a tangible non-current asset over its useful life.

Amortization

The systematic allocation of the cost of an intangible asset over its useful life.

Impairment Test

The procedure of comparing an asset's carrying amount with its recoverable amount to identify if an impairment loss exists.

External Indicators of Impairment

Market-based signs of impairment including significant declines in market value, adverse technological or legal changes, and increases in market interest rates.

Internal Indicators of Impairment

Entity-based signs of impairment including physical damage, obsolescence, plans to discontinue operations, or internal reports indicating performance is worse than expected.

Impairment Loss

The amount by which the carrying amount of an asset or $CGU$ exceeds its recoverable amount, calculated as $\text{Impairment Loss} = \text{Carrying Amount} - \text{Recoverable Amount}$.

Prudence Concept

An accounting principle that requires anticipating losses but not profits, ensuring that assets and profits are not overstated and liabilities and losses are not understated.

Reversal of Impairment Loss

The process allowed by IAS 36 (except for goodwill) to restore the carrying amount of an asset if its recoverable amount increases, provided it does not exceed the amount that would have been determined net of depreciation/amortization had no impairment been recognized.

CGU Impairment Loss Allocation

The specific order of writing down assets in a group where the loss is first allocated to goodwill and then to other assets in the unit on a pro-rata basis based on carrying amounts.

Annual Impairment Review

A mandatory yearly test required by IAS 36 for goodwill acquired in business combinations, intangible assets with indefinite useful lives, and intangible assets not yet available for use, regardless of whether indicators exist.