ACX2100 Chap.3 Impairment Testing: Recoverable Amount and Single Assets
Impairment Testing: Recoverable Amount and Single Assets
AASB 136 prevents assets from being carried above the amount recoverable through use or sale. Begin with scope: inventories, financial assets within AASB 9, deferred tax assets, employee-benefit assets, fair-valued investment property and several other items use their own measurement regimes. At each reporting date, assess external and internal impairment indicators.
Indefinite-life intangibles, intangibles not yet available for use and goodwill acquired in a business combination are tested annually even when no indicator exists. Recoverable amount selects the larger result from the sale route (FVLCD) and continued-use route (VIU). A loss exists only when carrying amount exceeds that selected amount.
For a cost-model asset, recognise the loss in profit or loss and reduce carrying amount, then recalculate depreciation prospectively. A revalued asset follows downward-revaluation treatment: use a related asset-specific surplus through OCI before charging any excess to profit or loss. The numerical work is short; the important marks are scope, trigger, higher-of selection and the correct performance statement.
What this chapter covers
- 01
AASB 136 objective and impairment-loss definition
- 02
Assets outside the ordinary AASB 136 test
- 03
External impairment indicators
- 04
Internal impairment indicators
- 05
Three annual-test categories
- 06
Fair value less costs of disposal
- 07
Value in use
- 08
Cost-model loss and revised depreciation
- 09
Revaluation-model downward treatment
AskSia-authored practice — measure and record a single-asset impairment
- FVLCDFair value less costs of disposal is $438,000 − $8,000 = $430,000.
- HigherRecoverable amount is the higher of $430,000 and value in use $446,000, so it is $446,000.
- LossImpairment loss is carrying amount $470,000 − recoverable amount $446,000 = $24,000.
- JournalDebit impairment loss in profit or loss and credit accumulated impairment losses for $24,000, reducing net assets.
- FutureNew depreciable amount is $446,000 − $26,000 = $420,000. Over seven years, annual depreciation is $60,000.
Key terms
- Impairment loss
- The amount by which an asset or CGU carrying amount exceeds its recoverable amount.
- Recoverable amount
- The larger result after separately estimating FVLCD for a sale and VIU for continued use.
- Fair value less costs of disposal
- Market-participant fair value reduced by incremental disposal costs.
- Value in use
- Present value of future cash flows expected from continuing use and ultimate disposal of the asset or CGU.
- Impairment indicator
- External or internal evidence suggesting an asset may be carried above recoverable amount.
Impairment Testing: Recoverable Amount and Single Assets FAQ
Which assets are tested every year?
Indefinite-life intangible assets, intangibles not yet available for use and goodwill acquired in a business combination are tested annually regardless of indicators.
Do I choose the lower recovery estimate?
No. Recoverable amount is the higher of FVLCD and value in use. There is one selected amount and one impairment comparison.
Where does a cost-model impairment go?
Recognise it immediately in profit or loss and reduce carrying amount, commonly through accumulated impairment losses.
What changes after an impairment?
Recalculate depreciation or amortisation prospectively using the reduced carrying amount, residual value and remaining useful life.
Exam move
Practise the test as six labels: scope, trigger, FVLCD, VIU, recoverable amount and recognition route. Build flashcards for the annual-test categories and the exclusions. On every number problem, select the higher recovery route before comparing with carrying amount. Finish by asking whether the asset is under the cost or revaluation model and whether future depreciation must change.
Week 3 prescribed reading is Chapter 8. Do not force a standalone test where the asset lacks independent cash inflows; that is the signal to move to the cash-generating-unit method. Use paired scenarios to separate recognition from measurement. Keep carrying amount constant while changing FVLCD and VIU, then state which recovery route controls and why.
Next keep recoverable amount constant while changing the measurement model so the recognition route must be reconsidered. For VIU, label cash-flow boundaries and discount-rate consistency before calculating; for FVLCD, distinguish market-participant measurement from entity-specific plans and deduct disposal costs. After recording a loss, rebuild the depreciable base prospectively.
Finish each drill with three spoken checks: the asset is in scope, the higher recovery amount was selected, and the journal direction reduces carrying amount. If cash inflows are not independent, stop and identify the CGU rather than forcing the arithmetic.
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