IFRS PRACTICAL IMPLEMENTATION GUIDE AND WORKBOOK

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Chapte r 28 I Impairment ofAssets (lAS 36)

l\IULTIPLE-CHOICE QUESTIONS I. lAS 36 applies to which of the following assets? (a) Inventories. (b) Financial assets. (c) Assets held for sale. (d) Property, plant, and equipment. Answer: (d) 2. Value-in -use is (a) The market value. (b) The discounted present value of future cash flows arising from use of the asset and from its disposal. (c) The higher of an asset's fair value less cost to sell and its market value. (d) The amount at which the asset is recognized in the balance sheet. Answe r: (b) 3. If the fair value less costs to sell cannot be deter– mined (a) The asset is not impaired. (b) The recoverable amount is the value-in-use. (c) The net realizable value is used. (d) The carrying value of the asset remains the same. Answer: (b) 4. If assets are to be disposed of (a) The recoverable amount is the fair value less costs to sell. (b) The recove rable amount is the value-in-use. (c) The asset is not impaired. (d) The recoverable amount is the carrying value. Answer: (a) 5. Estimates of future cash flows normally would cover projections over a maximum of Answe r : (a) 6. An entity has a database that it purchased five years ago. At that date, the database had 15,000 cus– tomer addresses on it. Since the date of purchase, 1,000 addresses have been taken from the list and 2,000 addresses have been added to the list. It is an– ticipated that in two years' time, a further 4,000 ad– dres ses will have been added to the list. In determining the value-in-use of the customer lists, how many addresses should be taken into account at the current date? (a) Five years. (b) Ten years. (c) Fifteen years. (d) Twenty years.

(b) The price in a binding sale agreeme nt. (c) Information available that determines the disposal value of the asset in an arm's– length transaction. (d) The carrying value of the asset. Answe r: (b) 8. When calculating the estimates of future cash flows, which of the following cash flows should not be included? (a) Cash flows from disposal. (b) Income tax payments. (c) Cash flows from the sale of assets produced by the asset. (d) Cash outflows on the maintenance of the as– set. Answer: (b) 9. When deciding on the discount rate that should be used, which factors should not be taken into ac– count? (a) The time value of money. (b) Risks that relate to the asset for which future cash flow estimates have not been adjusted . (c) Risks specific to the asset for which future cash flow estimates have been adjusted . (d) Pretax rates. Answer: (c) 10. An impairment loss that relates to an asset that has been revalued should be recognized in (a) Profit or loss. (b) Revaluation reserve that relates to the reval– ued asset. (c) Opening retained profits. (d) Any reserve in equity . Answer: (b) 11. A cash-generating unit is (a) The smallest business segment. (b) Any grouping of assets that generates cash flows. (c) Any group of assets that is reported sepa– rately to management. (d) The smallest group of assets that generates independent cash flows from continuing use. Answer: (d) 12. Goodwill should be tested for impairment (a) If there is an indication of impairment. (b) Annua lly. (c) Every five year s. (d) On the acquisition of a subsidiary. Answer: (b) 13. Where part of the cash-generating unit is dis– posed of, the goodwill assoc iated with the element disposed of (a) Shall be written off to the income statement entirely. (b) Shall not be included in the calculation of gain or loss on disposal. (c) Shall be included in the calculation of gain or loss on disposal.

(a) 15,000 (b) 16,000 (c) 20,000 (d) 21,000

Answe r: (b) 7. Which of the following is the best evidence of an asset' s fair value less costs to sell? (a) An asset that is trading in an active market.