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IAS 36 Impairment of Assets requires that an asset is not carried at more than its...

IAS 36 Impairment of Assets requires that an asset is not carried at more than its recoverable amount. Which of the following best describes recoverable amount?


The higher of the present value of all future cash flows associated with the asset for the rest of its useful life and fair value.
The higher of fair value less disposal costs and the present value of cash flows expected to be generated by the asset over a maximum of 5 years.
The higher of the present value of all future cash flows associated with the asset for the remainder of its useful life and fair value less selling costs.
The higher of fair value and the present value of cash flows expected to be generated by the asset over a maximum of 5 years.

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Expert Solution

Based on the question and the options available under IAS 36 - the term that best describes the recoverable amount is Option C. The higher of the present value of all future cash flows associated with the asset for the remainder of its useful life and fair value less selling costs.

Option A is incorrect. IAS 36 states that the costs to sell should be deducted from the fair value and should be compared with the present value of all future cash flows to find the recoverable amount.

Option B is incorrect. There is no limitation of the number of years to discount the cash flows to. The option mentions that it is only over a maximum of 5 years which is not true. It is generally the life of the asset that is taken into consideration in discounting the cash flows.

Option D is incorrect. There is no limitation to the present value of cash flows expected to be generated by the asset. This option mentions that it is limited to 5 years which is not true because it is the present value of all future cash flows associated with the asset for the remainder of its useful life.

ekkarill92 answered 2 years ago
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