When an asset is measured using the cost model, an impairment loss is: Reading required            Learning objective 8.4 on page 226Group of answer choicesrecognised directly in equity.accumulated in a separate 'accumulated impairment losses' account.included in the balance of the accumulated depreciation and impairment losses account for that asset.set off against the balance of revenue.

When an asset is measured using the revaluation model, any impairment loss is treated as: Reading required            Learning objective 8.4 on page 227Group of answer choicesa revaluation decrement.an off-set against depreciation expense.an addition to depreciation expense.a revaluation increment.

An impairment loss occurs when: Reading required            Learning objective 8.3 on page 224Group of answer choicesthe recoverable amount of an asset exceeds the carrying amount.the asset has a residual value of zero.the recoverable amount of an asset exceeds its initial cost.the carrying amount of an asset exceeds the recoverable amount.

If an entity does not expect to recover the carrying amount of an asset, the entity has incurred a/an: Reading required            Learning objective 8.1 on page 220Group of answer choicesdepreciation expense.loss on disposal.amortisation cost.impairment loss.

AS 36 Impairment of Assets prescribes the procedures that should ensure that assets are included in a statement of financial position at no more than their recoverable amounts. Where an asset is carried at an amount in excess of its recoverable amount, it is said to be impaired and IAS 36 requires an impairment loss to be recognised. Required:(i) Define an impairment loss explaining the relevance of fair value less costs of disposal and value in use, and state how frequently assets should be tested for impairment. (5 marks)(ii) Explain how an impairment loss is accounted for. (4 marks)(b) Wilderness owns and operates an item of plant that cost $640,000 and had accumulated depreciation of $400,000 at 1 October 20X7. It is being depreciated at 12½% on cost. On 1 April 20X8 the plant was damaged when a factory vehicle collided into it. Due to the unavailability of replacement parts, it is not possible to repair the plant, but it still operates, albeit at a reduced capacity. Also it is expected that as a result of the damage the remaining life of the plant from the date of the damage will be only two years. Based on its reduced capacity, the estimated present value of the plant in use is $150,000. The plant has a current disposal value of $20,000 (which will be nil in two years’ time), but Wilderness has been offered a trade-in value of $180,000 against a replacement machine which has a cost of $1 million (there would be no disposal costs for the replaced plant). Wilderness is reluctant to replace the plant as it is worried about the long-term demand for the product produced by the plant. The trade-in value is only available if the plant is replaced. Required:Prepare extracts from the statement of financial position and statement of profit or loss of Wilderness in respect of the plant for the year ended 30 September 20X8. Your answer should explain how you arrived at your figures. (6 marks)

AASB 136/IAS 36 Impairment of Assets defines value in use as the: Reading required            Learning objective 8.3.2 on page 225Group of answer choicesincremental costs directly attributable to the disposal of an asset or cash-generating unit, excluding finance costs and income tax expense.present value of the future cash flows expected to be derived from an asset or cash-generating unit.amount obtainable from the disposal of an asset, excluding any selling costs.initial cost of an asset less any expected disposal costs.