When evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to its recoverable amount. Recoverable amount is the higher of: Reading required Learning objective 8.3 on page 224Group of answer choicesvalue in use: and, original cost.original cost: and, net present value.fair value less costs to sell: and, value in use.initial cost: and, fair value.
Question
When evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to its recoverable amount. Recoverable amount is the higher of: Reading required Learning objective 8.3 on page 224Group of answer choicesvalue in use: and, original cost.original cost: and, net present value.fair value less costs to sell: and, value in use.initial cost: and, fair value.
Solution
When evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use.
Here are the steps to understand this:
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Understand the concept of recoverable amount: The recoverable amount of an asset is the higher of an asset's fair value less costs to sell and its value in use.
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Know the fair value less costs to sell: This is the amount obtainable from the sale of the asset in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal.
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Know the value in use: This is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.
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Compare the carrying amount and the recoverable amount: The entity needs to compare the carrying amount of the asset with its recoverable amount. If the carrying amount exceeds the recoverable amount, the asset is considered impaired.
So, when evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to its recoverable amount. The recoverable amount is the higher of fair value less costs to sell and value in use, not the original cost, net present value, or initial cost.
Similar Questions
As per AASB 136/IAS 36 Impairment of Assets, the recoverable amount test requires an entity to compare the fair value of an asset less costs to sell, with: Reading required Learning objective 8.3 on page 224Group of answer choicesthe amount obtainable from the sale of the asset.its disposal value.its value in use.the costs directly attributable to the liquidation of the asset.
f the fair value less costs to sell cannot be determineda.The net realizable value is used.b.The carrying value of the asset remains the same.c.The recoverable amount is the value-in-use.d.The asset is not impaired.
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.
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.
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.
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