- 16 Marks
PSAF- L2 – Q10.4 – International Public Sector Accounting Standards
Question
The following information relates to three intangible assets in respect of Nandom Technical University.
| Brands (GHC) | Software (GHC) | Trade Marks (GHC) | |
|---|---|---|---|
| Carrying amount | 200,000 | 300,000 | 240,000 |
| Net realisable value | 220,000 | 250,000 | 200,000 |
| Value in use | 240,000 | 260,000 | 180,000 |
Required:
(a) What is the recoverable amount of each asset?
(b) Calculate the impairment provision for each of the assets.
(c) Explain the treatment of impairment losses.
Answer
The recoverable amount of an asset is defined as the higher of its net realizable value (NRV) and value in use. The recoverable amount of the assets are computed as follows:
| Brand (GHC) | Software (GHC) | Trade Mark (GHC) | Total (GHC) | |
|---|---|---|---|---|
| Realizable value | 220,000 | 250,000 | 200,000 | 670,000 |
| Value in use | 240,000 | 260,000 | 180,000 | 680,000 |
| Recoverable amount (max) | 240,000 | 260,000 | 200,000 | 700,000 |
(b)
Impairment provision is calculated as the difference between the carrying amount of the asset and its recoverable amount if the carrying amount exceeds the recoverable amount. The impairment provision is computed as follows:
| Brand (GHC) | Software (GHC) | Trademark (GHC) | Total (GHC) | |
|---|---|---|---|---|
| Book value | 200,000 | 300,000 | 240,000 | 740,000 |
| Recoverable Amount | 240,000 | 260,000 | 200,000 | 700,000 |
| Impairment | 0 | 40,000 | 40,000 | 80,000 |
(c)
Impairment losses must be recognized in the financial statements as follows:
- Recognition: Impairment losses should be recognized in the statement of financial performance in the period in which the loss occurs. For Nandom Technical University, this would mean recognizing GHc40,000 for Software and GHc40,000 for Trade Marks as impairment losses. This would be classified as consumption of fixed asset on the chart of accounts of Ghana.
- Adjustment of carrying amount: The carrying amount of the impaired asset should be adjusted down to its recoverable amount. For example, the Software will be adjusted to GHc260,000 and the Trade Marks to GHc200,000 after recognizing the impairment loss.
- Subsequent reversal: If there are indications that an impairment may no longer exist or has decreased, the impairment loss may be reversed in future periods. The carrying amount of the asset can be increased up to the revised recoverable amount, not exceeding the original carrying amount before impairment.
- Disclosure: Adequate disclosure must be made in the financial statements regarding the impairment loss, including the nature of the asset, the amount of the loss, and the reasons for the impairment.
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