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“Select whether the following statements are indicators of impairment or are not indicators of impairment under IAS 36 Impairment of Assets?
A. Advances in the technological environment in which an asset is employed has an adverse impact on its future use
B. An increase in interest rates which increases the discount rate an entity uses
C. The carrying amount of an entity’s net assets is lower than the entity’s number of shares in issue multiplied by its share price
D. The estimated net realisable value of inventory has been reduced due to fire damage although this value is greater than its carrying amount”
Hello tutor,
For this question, I think C is not an indicator of asset as impairment is applied for tangible and intangible assets only. For the shares, I think they are the capital source, so impairment will not be applied in this case. Is it correct?
For D, as inventory is not within the scope of impairment; therefore, in case when the net recoverable amount is lower than the carrying amount, although we reduce the carrying amount to net recoverable amount, it is not an impairment. Am I correct?
Thank you tutor!
Hi,
With C I think it should be that the carrying amount of the net assets is higher, as this is what is stated in IAS 36.
For D, as the selling price is still higher than the carrying value then there is no reduction in value to the inventory.
Thanks
Thank you tutor for your reply. But for C, as in SOFP we only record the value of the shares at the time of issuance, how can an increase in market price of these shares result at an impairment of net asset?
If that is the case, then a public company can record impairment for net asset every year.
Thank you tutor!
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