Page 14 - 2018 Finac1 Test 3 Class Slides - 3. Impairment Of Assets

TEST 3 PREPARATION

How to calculate an impairment loss?

• Step 1: Understand the basic principle

• After identifying an asset that may be impaired at the end of

the reporting period, the impairment loss must be calculated.

• Step 2: Calculate the asset's carrying amount

• Step 3: Calculate the asset's recoverable amount

• The recoverable amount is the higher of an asset's fair value

less costs to sell and its value in use.(IAS 36.18)

• Fair value less costs to sell is determined by:

• a binding sale agreement in an arm's length transaction adjusted for
incremental costs of disposal. (IAS 36.25); or

• if the asset is traded in an active market, the current market price

less the costs of disposal (IAS 36.26); or

• based on the best available information of the most recent
transaction(s) for similar assets within the same industry. Please note
that fair value less costs to sell does not reflect a forced sale unless
management is compelled to sell immediately. (IAS 36.27)

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