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Could you please explain to me the following indicators of impairment?
– Discontinuance, disposal or restructuring plans
– Changes in technological, market, economic or legal environment.
Thanks,
Me
Indicators impairment of discontinued or disposal is where decision to sell the asset is made before ifrs 5 and impairment must be considered first. It is where the cost of disposal or to sell the asset exceeds the market value then impairment has occurred.
Technology is usually has a short udefilt life. Ie mobile phones is fast industry you see people buying new phones when a new model is out. Hence the old model will probably be lowered by its value or obsolescence. Impairment has occurred as you cannot sell it for that price anymore.
Thanks Kerri, and many congratulations on your promotion to “Tutor” status. I just wish that Admin had mentioned it!
@Me discontinuance is a potential indicator of impairment – ppe is no longer going to be used so ppe needs to be considered for impairment
Disposal – when an asset is re-classified as held-for-sale, it needs to be assessed for impairment to write it down to market value at the date of re-classification
Restructuring – assets previously in use could find that they are no longer used or may be being used to a lesser extent
As Kerri so usefully says “Technology is usually has a short udefilt life” In the context of changes in technology (that usually has a short udefilt life) assets that have been producing high-technology products could have a shorter useful life than originally anticipated because changes in fashion / technology has made those products no longer desirable by the market so the ppe that produced these non-desirable goods may be impaired
Kerri unfortunately has targeted her answer at inventory that cannot be sold at its original value but of course impairment of TNCA does not apply to inventory and I assume that your post was aimed at IAS 36
Market, economic and legal should, by now, as a result of my answer above, be relatively obvious why market changes, legal and economic matters could very well have an affect on TNCA but, equally, may have no affect. However, they could be seen as indicators of possible impairment and therefore should be considered
Hope that helps
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