• 5 Marks

FR – Nov 2015 – L2 – Q4a – Impairment of Assets (IAS 36)

List external and internal factors an entity should consider to assess asset impairment.

The purpose of IAS 36: Impairment of Assets is to provide entities with guidance to determine whether an asset is impaired and how the impairment should be recognized.

Required:
a. In assessing whether there is an indication that an asset may be impaired, what factors should an entity consider?

 

External Factors:

  1. An unexpected decline in the asset’s market value.
  2. Significant changes in technology, market conditions, economy, or laws that adversely affect the value of the asset.
  3. Increase in interest rates that may affect the discount rate and hence the recoverable amount of the asset.
  4. The carrying amount of the entity’s net assets is more than its market capitalization.

Internal Factors:

  1. Evidence of physical damage to the asset or that it is no longer in use.
  2. Significant changes in the asset’s use, such as discontinuation or restructuring of operations in which the asset is used.
  3. Indications from internal reporting that the asset’s performance is worse than expected.
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