Question

Impaired Assets and Depreciation Methods" Please respond to the following:

From the e-Activity, summarize the authoritative guidance for asset impairments under IFRS. Give at least two (2) examples of events that could cause an asset to be tested for impairment, and recommend the best method to determine the fair value of an impaired asset. Explain the rationale for your recommendation.

Differentiate between the decreasing-charge depreciation methods and the special depreciation methods, and suggest the method that would result in the highest depreciation during the first year of operations. Imagine you are a manager at Delta Airlines and are giving a presentation to the Board of Directors concerning the best depreciation method to use for the purchase of twenty-five (25) new aircrafts. Explain to the Board the method that would result in the highest depreciation charge for the next five (5) years

Answer 1

Answer

In IFRS under IAS 36

A company 's asset that has no value in the market but is listed on company's balance
sheet is known as impaired asset.

Impairment of Asset guidance under IFRS ensures that the company's assets are not carried at more than their recoverable amount. Impairment tests are conducted for some assets which indicate the asset impairment and then test is conducted for cash-generating unit. In the second test, states that the asset does not generate cash inflows that are largely independent of other assets.

Events that cause an asset to be tested for impairment are changes in regulation and business climate, decline in usage rate, technological changes and forecast that states that there will be a significant decline in the long-term profitability of the asset.

Two example of events that could cause an asset to be tested for impairment

1.Negative changes in technology, markets, economy, or laws (External reason)

2.Obsolescence or physical damage (Internal reason)