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The following data on a long-term asset in thousands31/12/2013; - Historical cost800$ - Accumulated depreciation200$ - Net cash flows (undiscounted) expected from its use, including the Expected price for the sale as scrap650$ - Fair value525$ The impairment loss of the asset; a)150 $ b)75 $ c)275 $ d) Zero
This is a vague question.
Impairment loss is the amount by which the CARRYING AMOUNT OF AN ASSET EXCEEDS ITS RECOVERABLE AMOUNT.
Here, The carrying amount is $600
Recoverable amount is the HIGHER of,
a. FV less cost to sell,
b. Present value of Value in use including any value fetched on sale
Now this present value as mentioned in (b) may be achieved by discounting $650 at the rate of discount over the years of inflow.
If the discounted cash flows are over $525, than value in use should be the recoverable amount. In which situation it shall be (the amount of value in use) compared with carrying amount. If the carrying amount is found lower, no impairment would be charged. However if carrying amount is found greator, than impairment shall be charged to the difference of discounted value in use and carrying amount.
However, if the discounted value in use is lower than fair value, than fair value shall be the recoverable amount in which condition an impairment of $75 shall be charged.
Impairment loss: the amount by which the carrying amount of an asset exceeds its recoverable amount
Carrying amount: the amount at which an asset is recognised in the balance sheet after deducting accumulated depreciation and accumulated impairment losses.
Recoverable amount: the higher of an asset's fair value less costs of disposal and its value in use.
So in this situation the impairment loss will be zero.
Giving that the calculation of the Net cash flow was not discounted then we cannot consider it as the “Value in use” according to IAS36, IF the only value which can be measured reliably to compare is the fair value, the impairment loss will be the carrying amount600 (800-200) less fair value525 =75 $ (answer B)
ZERO
since the asset being sold as scrap for more than the carrying amount.
impairment is nil.
Answer : D. No Impairment
impairment occur when CV of asset > recovarable amount
while recovarable amount is heigher of Fair value less cost to sell or value in use
so value in use is heigher which is650 we will comapre it CV which is800-200=600 ..
so impairmentloss is zeroooo
DescriptionAmount
Historical cost800
Accumulated depreciation-200
Net PP&E600
Fair value525
impairment loss of the asset = -75
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