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Impairment

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FR Exams › Impairment

  • This topic has 1 reply, 2 voices, and was last updated 2 years ago by AvatarP2-D2.
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    Posts
  • December 23, 2023 at 11:57 pm #697313
    AvatarSyed Ahsan Ali
    Participant
    • Topics: 136
    • Replies: 85
    • ☆☆☆

    I’m confused with depreciation, amortization and impairment.

    Are they CORRECT:

    1. Depreciation is the devaluation of non-current assets?

    2. Amortization is the devaluation of intangible assets?

    3. Impairment is the reduction in the value of assets when the book value of assets is more than their fair value which means the asset is less worth at the time of sale.

    4. Is it true that Impairment is the reduction in the market value of an asset for unforeseen circumstances (as opposed to simply the ‘using-up’ of an asset which is the case for depreciation and amortization?

    5. The unforeseen circumstances refer to situations like any damage to an asset, any natural disaster or simply change in consumer demand etc resulting in a reduction of asset market value?

    6. The journal entry for depreciation is:
    Depreciation expense (debit)
    Accumulated depreciation (credit)

    7. The journal entry for amortization is:
    Amortization expense (debit)
    Accumulated amortization (credit)

    8. The journal entry for impairment is:
    Impairment expense (debit)
    Non-current asset (credit)

    9. How the depreciation, amortization and impairment are recorded in the consolidation financial statement with their journal entries?

    10. In consolidation, the depreciation expense will be less from Group retained earnings while accumulated depreciation will be less from non-current asset in SOFP and same treatment goes for amortization?

    11. In consolidation, the impairment expense will be less from Group retained earnings while reducing the value of non-current assets?

    12. I have seen that you used market value and fair value interchangeably but what is the distinction?

    So sorry for such a lengthy question but i really needed your help here. Thanks ?

    January 2, 2024 at 8:53 am #697601
    AvatarP2-D2
    Keymaster
    • Topics: 4
    • Replies: 7232
    • ☆☆☆☆☆

    1. Correct

    2. Correct

    3. An asset is impaired if the CV is greater than the recoverable amount.

    4. Correct

    5. Correct

    6. Correct

    7. Correct

    8. Correct

    9. The same journal entries are used as in the previous questions above.

    10. Yes

    11. Yes but be careful when it comes to the impairment of goodwill.

    12. Fair value and market value are pretty much the same. We use the market value for the fair value of an item if it is a traded item that has a market value.

    Thanks

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