Question

Access the IFRS authoritative literature at the IASB website and after some research answer the following questions: In your initial post, answer what is the authoritative guidance for asset impairments? Briefly discuss the types of transactions to which the standard applies. In your reply post comment on your classmate's initial post and give several examples of events that would cause an asset to be tested for impairment. What is the best evidence of fair value? Describe alternative methods of estimating fair value.

Answer 1

IAS 36 , Impairment of assets applies for asset impairments. The standard applies to all assets that the business owns except for those specifically mentioned. According to the standard all assets must be tested for impairment i.e. the carrying value of the asset as reflected in the balance must not exceed the maximum value that will be realized on sale in the market on the date it is tested.

Some of the causes that would cause an asset to be tested for impairment are:

(i) Depreciation of the asset

(ii) Obsolescence due to new technology

(iii) Sale of assets

(iv) Assets acquired through takeover or mergers

The best evidence of fair value is the arms length selling price between willing parties having adequate knowledge of the transaction minus any transaction costs.

Alternative methods of estimating fair value:

(i) The present value of the cash flows expected to be derived from the asset over its useful life can be an estimate of the fair value.