Page 13 - Finac1 Test 3 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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