Impairment Quiz Questions 2014 1 1
ADVANCED FINANCIAL ACCOUNTING 260
IMPAIRMENT QUIZ QUESTIONS
1. When should an entity conduct an impairment test? (2 Marks)
Assets that are consider to have uncertain carrying amounts must be tested every year for impairment.
Goodwill acquired in a business combination
Intangible assets with an indefinite useful life
Intangibles not yet ready for use
Impairment testing of all other assets is required only if there is an indication that they might be impaired due to events such as the economic and legal environment and market values etc.
2. How is an impairment test undertaken? (2 Marks)
The test involves comparing the carrying amount of an assets or CGU with its recoverable amount. The recoverable amount is the higher of fair value less cost to sell and it value in use.
3. What is ‘value in use’? (1 Mark)
Value in use is the present value of future cash flows expected to be derived from an asset or a CGU.
4. How is value in use for a cash generating unit calculated? (2 Marks)
It is a professional estimate based on past cash inflows and expected future cash inflows.
5. What is an impairment loss? (1 Mark)
The loss of future economic benefit as the amount in the balance sheet for the asset or CGU exceeds it recoverable amount.
6. What is a cash-generating unit? (1 Mark)
A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets. CGU assets usually cannot be tested individually.
7. How are corporate assets tested for impairment? (2 Marks)
As they do not independently generate cash flows they are allocated to CGU on a reasonable or consistent basis. The portion of corporate assets is then tested along with the assets of the CGU to which it has been allotted.
8. Supersatumas grows citrus fruit on a number of orchards in the Perth Hills. This fruit
IMPAIRMENT QUIZ QUESTIONS
1. When should an entity conduct an impairment test? (2 Marks)
Assets that are consider to have uncertain carrying amounts must be tested every year for impairment.
Goodwill acquired in a business combination
Intangible assets with an indefinite useful life
Intangibles not yet ready for use
Impairment testing of all other assets is required only if there is an indication that they might be impaired due to events such as the economic and legal environment and market values etc.
2. How is an impairment test undertaken? (2 Marks)
The test involves comparing the carrying amount of an assets or CGU with its recoverable amount. The recoverable amount is the higher of fair value less cost to sell and it value in use.
3. What is ‘value in use’? (1 Mark)
Value in use is the present value of future cash flows expected to be derived from an asset or a CGU.
4. How is value in use for a cash generating unit calculated? (2 Marks)
It is a professional estimate based on past cash inflows and expected future cash inflows.
5. What is an impairment loss? (1 Mark)
The loss of future economic benefit as the amount in the balance sheet for the asset or CGU exceeds it recoverable amount.
6. What is a cash-generating unit? (1 Mark)
A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows of other assets or groups of assets. CGU assets usually cannot be tested individually.
7. How are corporate assets tested for impairment? (2 Marks)
As they do not independently generate cash flows they are allocated to CGU on a reasonable or consistent basis. The portion of corporate assets is then tested along with the assets of the CGU to which it has been allotted.
8. Supersatumas grows citrus fruit on a number of orchards in the Perth Hills. This fruit