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

Impairment of Asset

Impairment have the dictionery meaning "the state of being diminised, weakened, or damaged" . Impairment of Asset means the asset which the carrying amount of asset is more the its recoverable amount and such loss is known is Impairment Loss.

IAS 36 applies to all assets except those for which other Standard address impairment, the exception include inventories, financial assets etc.

Cause for Impairment- Organaiztion is required to apply imparment test on annual basis and Following are the indicators of Impairment

A) Internal Indication-

1. Phycial damage or deterioration.

2. Operating Loss or net cash outflows from the asset.

3. Excessive repair and maintaince expence

B) External Indications-

1. Sudden fall in market.

2. Technological, Economical, or legal changes in the market with an adverse effect upon the entity.

3. Decrease the demad of the product related to the asset.

Special Deprecation will incure higer deprication as compare to decrease value deprication.