In: Accounting
7. Briefly write about the procedure for impairment of intangible assets with suitable examples.
The objective of this Standard is to prescribe the procedures
that an entity applies to ensure that its assets are carried at no
more than their recoverable amount. An asset is carried at more
than its recoverable amount if its carrying amount exceeds the
amount to be recovered through use or sale of the asset. If this is
the
case, the asset is described as impaired and the Standard requires
the entity to recognise an impairment loss. The Standard also
specifies when an entity should reverse an impairment loss and
prescribes disclosures.Carrying amount is the amount at which an
asset is recognised after deducting any accumulated depreciation
(amortisation) and accumulated impairment losses thereon.A
cash-generating unit is the smallest identifiable group of assets
that generates cash inflows that are largely independent of the
cash inflows from
other assets or groups of assets.Corporate assets are assets other
than goodwill that contribute to the future cash flows of both the
cash-generating unit under review and other cash-generating
units.Costs of disposal are incremental costs directly attributable
to the disposal of an asset or cash-generating unit, excluding
finance costs and income tax expense.
Example- A bus company provides services under contract with a
municipality that requires
minimum service on each of five separate routes. Assets devoted to
each route and the cash flows from each route can be identified
separately. One of the routes operates at a significant loss.
Because the entity does not have the option to curtail any one bus
route, the lowest level of identifiable cash inflows that are
largely independent of the cash inflows from other assets or groups
of assets is the cash inflows generated by the five routes
together. The cash-generating unit for each route is the bus
company as a whole.