Under IAS 36, the following factors are significant when conducting an impairment test:

1. Changes in Circumstances: Changes in circumstances, such as economic or operational changes, may give rise to indicators of impairment that require multiple impairment tests within an annual reporting period. In periods of high uncertainty, companies may need to test for impairment at both interim and year-end periods. The recognition of changes may result in a more accurate reflection of the asset’s recoverable amount.
2. Market Capitalization: A company’s market capitalization is a strong indicator of impairment if it falls below the book value of net assets. This discrepancy suggests that the market perceives the company’s assets to be overvalued. However, market capitalization is not an absolute determinant of impairment, and entities must investigate the reasons for the shortfall before adjusting asset values.
3. Allocation and Reallocation of Goodwill to Cash-Generating Units (CGUs): The allocation of goodwill to CGUs is critical as it determines the carrying amount for impairment testing. Changes in CGUs, such as disposals or restructuring, require goodwill to be reallocated on a relative value basis. Proper allocation ensures that impairment losses are recognized at the appropriate level within the entity, reflecting economic realities.

(3 points @ 2 marks = 6 marks)