Question

In: Accounting

Question 14) Before the holy month of Ramadan in Arab countries, people used to renew the...

Question 14) Before the holy month of Ramadan in Arab countries, people used to renew the dining rooms furniture. Therefore, Malak’s Furniture store purchased especially decorated Dining Rooms on 1st of February 2020. Due to COVID-19 breakout and the quarantine imposed on people, Malak expect that the Special Dining Rooms will not be sold for Ramadan that forced the company to decrease the prices in order to attract customers. However, sales are less than expectation.

Analyze the above case based on the IFRS requirements for IAS 36 “Impairment of Assets”

Solutions

Expert Solution

IAS 36 deals with the Impairment of Assets. Applicability of IAS 36 "Impairment of Assets" is as follows.

IAS 36 applies to all assets except: [IAS 36.2]

  • Inventories (see IAS 2)
  • Assets arising from construction contracts (see IAS 11)
  • Deferred Tax Assets (see IAS 12)
  • Assets arising from Employee Benefits (see IAS 19)
  • Financial Assets (see IAS 39)
  • Investment property carried at fair value (see IAS 40)
  • Agricultural assets carried at fair value (see IAS 41)
  • Insurance contract assets (see IFRS 4)
  • Non-current assets held for sale (see IFRS 5)

Therefore, it is clear that Inventory is out of scope of IAS 36.

Current Situation: Malak's Furniture store purchased specially designed Furniture to sell on the occasion of Ramadan. Due to COVID-19 pandemic, it unable to sell the specially designed Furniture. As a result of this, the value of the Furniture got declined.

Analysis: Malak's Furniture Store is involved in trading of Furniture. Therefore, Furniture becomes Inventory to it, which is covered by IAS 2.

Conclusion: The decline in the value of Furniture is not dealt by IAS 36.

Note: If you have any doubts or need any clarifications, feel free to reach us in comments. Kindly give your valuable feedback.


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