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IAS 36 Impairment of Assets describes the procedures that an entity should follow to ensure that it carries its assets at no more than their recoverable amount. Goodwill acquired in a business combination or intangible assets with indefinite useful lives have to be tested for impairment at least on an annual basis. What are the circumstances under which impairment of goodwill can be reversed?

Where a subsidiary is sold and the investment realised

Where goodwill is revalued

Where the recoverable amount exceeds the carrying value

Impairment of goodwill cannot be reversed

For the purposes of impairment testing, goodwill should be allocated to the cash-generating units (CGU) or groups of CGUs benefiting from goodwill. What is the basis for the determination of the size of the CGU for the allocation of goodwill?

The group of units should not be larger than the largest subsidiary before aggregation

The group of units should not be larger than an operating segment before aggregation

The group of units is determined by the chief operating officer

The group of units should be larger than an operating segment before aggregation

IAS 36 gives a list of common indicators of impairment. Which of the following is not deemed to be an indicator of impairment?

The economic performance of an asset being worse than projected in internal budgets

Market value of an asset being above the carrying value

Increases in market interest rates

Market capitalisation below net asset carrying value

Detailed disclosures, including the circumstances that have led to impairment, are required in relation to each CGU with significant amounts of goodwill and other intangible assets. Which of the following disclosures are not required under IAS36?

Sensitivity analysis

Key assumptions on which management has based cash flow projections

The basis of valuation of the asset at cost or fair value

Terminal growth rates and discount rates

The International Accounting Standards Board (IASB) has recently published Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36). What was the amendment introduced by this publication?

Limits the scope of the disclosures of the recoverable amount of impaired assets to that based on fair value less costs of disposal

Limits the scope of the disclosures of the recoverable amount of impaired assets to that based on value in use

Increases the scope of the disclosures of the recoverable amount of impaired assets

Increases the scope of the disclosures regarding the value in use calculation

The Centre for Financial Analysis and Reporting Research (CeFARR) at the Cass Business School entitled Accounting for asset impairment: a test for IFRS compliance across Europe reviewed the compliance of European listed companies' as regards IAS 36. CeFARR found that compliance with some impairment disclosure requirements varied quite considerably suggesting inconsistency in the application of IFRS. Which of the following was a key finding of the CeFARR report?

Compliance with impairment disclosure that required greater managerial involvement was less rigorous than those requirements with low effort required

Companies operating in a weak regulatory and enforcement setting appear to recognise impairment losses on a timelier basis

There was little use of boilerplate description

The quality of impairment reporting is worse in companies whose jurisdiction has a strong regulatory and institutional infrastructure

As a result of the ESMA review, they have identified five problem areas in impairment reporting. Which of the following was not deemed to be a problem area?

Determination of value in use

Determination of growth rates

Sensitivity analysis

Key assumptions of the management

ESMA and the national regulatory authorities are focusing on certain key aspects of IAS 36. Which of the following is not a key area of concern?

The reasonableness of cash flows forecasts

The application by entities of the rules re impairment testing of goodwill and other intangible assets

The key assumptions used in the impairment test

The market capitalisation of entities

In the current economic and financial crisis, assets in many industries are likely to generate lower than expected cash flows with the result that their carrying amount is greater than their recoverable amount with the result that impairment losses are required. What were the findings by ESMA in their report?

Overall impairment losses on goodwill in 2011 amounted to only 15percent of goodwill recognised in the 2010 IFRS financial statements

The average equity/market capitalisation ratio of their sample fell from 100percent at 2010 year-end to 45percent at 2011 year-end

Material impairment losses of goodwill reported in 2011 were limited to a small number of companies

The impairment losses were mainly in the real estate and telecommunication industries

ESMA were concerned over the increased equity/market capitalisation ratio but relatively limited impairment losses. What was their view as regards this concern?

IAS 36 provides too much specific detail, especially as regards the nature of the sensitivity analysis

It calls into question whether the level of impairment in 2011 appropriately reflects the effects of the financial and economic crisis

Most companies complied with the requirements of the standard

It calls into question whether the level of impairment in 2011 appropriately reflects the effects of the financial and economic crisis

In order to be awarded CPD units you must answer the following five random questions correctly. If you fail the test, please re-read the article before attempting the questions again.

For the purposes of impairment testing, goodwill should be allocated to the cash-generating units (CGU) or groups of CGUs benefiting from goodwill. What is the basis for the determination of the size of the CGU for the allocation of goodwill?

IAS 36 gives a list of common indicators of impairment. Which of the following is not deemed to be an indicator of impairment?

Detailed disclosures, including the circumstances that have led to impairment, are required in relation to each CGU with significant amounts of goodwill and other intangible assets. Which of the following disclosures are not required under IAS36?

The International Accounting Standards Board (IASB) has recently published Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36). What was the amendment introduced by this publication?

As a result of the ESMA review, they have identified five problem areas in impairment reporting. Which of the following was not deemed to be a problem area?

ESMA and the national regulatory authorities are focusing on certain key aspects of IAS 36. Which of the following is not a key area of concern?

ESMA were concerned over the increased equity/market capitalisation ratio but relatively limited impairment losses. What was their view as regards this concern?

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