Question 1

An impairment loss occurs when:

Accepted Answer

A)  the asset has a residual value of zero. 
B)  the recoverable amount of an asset exceeds the carrying amount. 
C)  the carrying amount of an asset exceeds the recoverable amount. 
D)  the recoverable amount of an asset exceeds its initial cost. 
A)  the asset has a residual value of zero. 
B)  the recoverable amount of an asset exceeds the carrying amount. 
C)  the carrying amount of an asset exceeds the recoverable amount. 
D)  the recoverable amount of an asset exceeds its initial cost. C

Question 2

During 2021, Simpson Limited estimated that the carrying amount of goodwill was impaired by $20 000. In 2022, the company reassessed goodwill and determined that the goodwill initially acquired still existed. The appropriate accounting treatment in 2022 is:

Accepted Answer

A)  reverse the previous goodwill impairment loss. 
B)  recognise the revalued amount of goodwill by an adjustment against the asset revaluation surplus account. 
C)  increase goodwill by an adjustment to retained earnings. 
D)  ignore the reversal as it is prohibited by AASB 136 Impairment of Assets. 
A)  reverse the previous goodwill impairment loss. 
B)  recognise the revalued amount of goodwill by an adjustment against the asset revaluation surplus account. 
C)  increase goodwill by an adjustment to retained earnings. 
D)  ignore the reversal as it is prohibited by AASB 136 Impairment of Assets. D

Question 3

Noble Limited estimated that it would receive future cash flows from the use of equipment as follows: End of Year 1 $20 000
End of Year 2 $70 000
End of Year 3 $40 000
End of Year 4 $30 000
The discount rate was determined as 5%. The 'value in use' of the equipment is:

Accepted Answer

A)  $141 774 
B)  $160 000 
C)  $142 727 
D)  unable to determine from the information provided. 
A)  $141 774 
B)  $160 000 
C)  $142 727 
D)  unable to determine from the information provided. A

Question 4

Under the cost model, an impairment loss would be recorded as:

Accepted Answer

A)  DR Sales, CR Impairment loss. 
B)  DR Impairment loss, CR Accumulated depreciation and impairment losses. 
C)  DR Accumulated impairment losses, CR Impairment loss. 
D)  DR Accumulated impairment losses, CR Asset revaluation (equity). 
A)  DR Sales, CR Impairment loss. 
B)  DR Impairment loss, CR Accumulated depreciation and impairment losses. 
C)  DR Accumulated impairment losses, CR Impairment loss. 
D)  DR Accumulated impairment losses, CR Asset revaluation (equity).

Question 5

When evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to its recoverable amount. Recoverable amount is the higher of:

Accepted Answer

A)  initial cost: and, fair value. 
B)  original cost: and, net present value. 
C)  value in use: and, original cost. 
D)  fair value less costs to sell: and, value in use. 
A)  initial cost: and, fair value. 
B)  original cost: and, net present value. 
C)  value in use: and, original cost. 
D)  fair value less costs to sell: and, value in use.

Question 6

As per AASB 136 Impairment of Assets, the recoverable amount test requires an entity to compare the fair value of an asset less costs to sell, with:

Accepted Answer

A)  its disposal value. 
B)  its value in use. 
C)  the amount obtainable from the sale of the asset. 
D)  the costs directly attributable to the liquidation of the asset. 
A)  its disposal value. 
B)  its value in use. 
C)  the amount obtainable from the sale of the asset. 
D)  the costs directly attributable to the liquidation of the asset.

Question 7

If an entity does not expect to recover the carrying amount of an asset, the entity has incurred a/an:

Accepted Answer

A)  depreciation expense. 
B)  amortisation cost. 
C)  loss on disposal. 
D)  impairment loss. 
A)  depreciation expense. 
B)  amortisation cost. 
C)  loss on disposal. 
D)  impairment loss.

Question 8

Which of the following assets need to be tested for impairment every year? I intangible assets with indefinite useful lives
II intangible assets not yet available for use
III intangible assets accounted for under the revaluation method
IV goodwill acquired in a business combination

Accepted Answer

A)  I, II and III only. 
B)  II, III and IV only. 
C)  I, III and IV only. 
D)  I, II and IV only. 
A)  I, II and III only. 
B)  II, III and IV only. 
C)  I, III and IV only. 
D)  I, II and IV only.

Question 9

When assessing the recoverable amount of assets that have previously been subject to an impairment loss, which of the following indicators assist in providing external evidence that an impairment loss has reversed:

Accepted Answer

A)  a decrease in market interest rates during the period. 
B)  a significant decrease in the asset's market value during the period. 
C)  an adverse effect on the entity from significant changes that have taken place. 
D)  internal reporting sources indicate that the economic performance of the asset will not be as good as expected. 
A)  a decrease in market interest rates during the period. 
B)  a significant decrease in the asset's market value during the period. 
C)  an adverse effect on the entity from significant changes that have taken place. 
D)  internal reporting sources indicate that the economic performance of the asset will not be as good as expected.

Question 10

When an asset is measured using the revaluation model, any impairment loss is treated as:

Accepted Answer

A)  a revaluation decrement. 
B)  a revaluation increment. 
C)  an off-set against depreciation expense. 
D)  an addition to depreciation expense. 
A)  a revaluation decrement. 
B)  a revaluation increment. 
C)  an off-set against depreciation expense. 
D)  an addition to depreciation expense.

Question 11

Compose Limited estimated an impairment loss of $2 500 000 against its single cash-generating unit. The company had the following assets: headquarters building $3 000 000; plant $1 600 000; equipment $1 400 000. The net carrying amount of the plant after allocation of the impairment loss is:

Accepted Answer

A)  $Nil 
B)  $933 
C)  $817 
D)  $1750 
A)  $Nil 
B)  $933 
C)  $817 
D)  $1750

Question 12

Which of the following identifies an impairment of an asset and describes the appropriate accounting treatment using the cost model as per AASB 136 Impairment of Assets? $\quad$Impairment identified when:$\quad$$\quad$$\quad$$\quad$Appropriate accounting treatment
a.Carrying amount of an asset is less$\quad$$\quad$Asset is written up to its recoverable amount
$\quad$ than its recoverable amount
b.Carrying amount of an asset is less $\quad$$\quad$No change to the asset value 
$\quad$than its recoverable amount
c.Carrying amount of an asset is $ \quad $ $\quad$$\quad$Asset is written down to its recoverable 
$\quad$greater than itsrecoverable amount$\quad$$\quad$ amount
d.Caryying amount of an asset is$\quad$$\quad$$\quad$No change to the asset value 
$\quad$oreater than its recoverable amount

Accepted Answer

The answer of Which of the following identifies an impairment...

Question 13

Goodwill acquired under a business combination is subject to an impairment test every:

Accepted Answer

A)  year. 
B)  two years. 
C)  three years. 
D)  five years. 
A)  year. 
B)  two years. 
C)  three years. 
D)  five years.

Question 14

Which of the following is required to be disclosed for each class of assets? I the amount of impairment losses recognised in profit or loss during the period.
II the amount of reversals of impairment losses recognised in profit or loss during the period.
III the amount of impairment losses on revalued assets recognised in other comprehensive income during the period.
IV the amount of reversals of impairment losses on revalued assets recognised directly in other comprehensive income during the period.

Accepted Answer

A)  III and IV only. 
B)  I, II and III only. 
C)  I, II, III and IV 
D)  I and II only. 
A)  III and IV only. 
B)  I, II and III only. 
C)  I, II, III and IV 
D)  I and II only.

Question 15

At reporting date Guzzle Limited estimated an impairment loss of $50 000 against its single cash-generating unit. The company had the following assets: headquarters building $200 000; plant $120 000; equipment $40 000. The net carrying amount of the headquarters building after allocation of the impairment loss is:

Accepted Answer

A)  $103 333 
B)  $150 000 
C)  $160 000 
D)  $172 222 
A)  $103 333 
B)  $150 000 
C)  $160 000 
D)  $172 222

Question 16

How often must an impairment test be applied to tangible assets?

Accepted Answer

A)  every two years. 
B)  at the end of each financial year. 
C)  only when there is an indication that the asset may be impaired. 
D)  at each reporting date including interim reporting dates such as half-year. 
A)  every two years. 
B)  at the end of each financial year. 
C)  only when there is an indication that the asset may be impaired. 
D)  at each reporting date including interim reporting dates such as half-year.

Question 17

When an asset is measured using the cost model, an impairment loss is:

Accepted Answer

A)  set off against the balance of revenue. 
B)  recognised directly in equity. 
C)  accumulated in a separate 'accumulated impairment losses' account. 
D)  included in the balance of the accumulated depreciation and impairment losses account for that asset. 
A)  set off against the balance of revenue. 
B)  recognised directly in equity. 
C)  accumulated in a separate 'accumulated impairment losses' account. 
D)  included in the balance of the accumulated depreciation and impairment losses account for that asset.

Question 18

Lacey Limited expected future cash flows from the use of plant as follows: End of Year 1 $14 000; End of Year 2 $15 000; End of Year 3 $12 000. The discount rate was determined as 9%. The value in use of the plant is:

Accepted Answer

A)  $41 000 
B)  $34 735 
C)  $37 862 
D)  $Nil. 
A)  $41 000 
B)  $34 735 
C)  $37 862 
D)  $Nil.

Question 19

Berry Pty Ltd has two cash generating units. CGU A had a carrying amount of $1700 and value in use of $1750. CGU B has a carrying amount of $1900 and a value in use of $1800. The carrying amount of the head office assets is $1400. CGU A and B utilise the head office services equally. The impairment loss for CGU A is:

Accepted Answer

A)  $0. 
B)  $650. 
C)  $800. 
D)  $1350. 
A)  $0. 
B)  $650. 
C)  $800. 
D)  $1350.

Question 20

In relation to the reversal of an impairment loss of an individual asset, which of the following is incorrect?

Accepted Answer

A)  When reversing an impairment loss, the carrying amount cannot be increased to an amount in excess of the carrying amount that would have been determined had no impairment loss been recognised. 
B)  Where the recoverable amount is less than the carrying amount of an individual asset, the reversal of a previous impairment loss requires adjusting the carrying amount of the asset to recoverable amount. 
C)  For a depreciable asset, there needs to be a calculation of carrying amount using the depreciation variables applied before the impairment loss to determine what the carrying amount would have been if there had been no impairment loss. 
D)  If the individual asset is recorded under the cost model, then the increase in the carrying amount is recognised immediately in profit or loss. 
A)  When reversing an impairment loss, the carrying amount cannot be increased to an amount in excess of the carrying amount that would have been determined had no impairment loss been recognised. 
B)  Where the recoverable amount is less than the carrying amount of an individual asset, the reversal of a previous impairment loss requires adjusting the carrying amount of the asset to recoverable amount. 
C)  For a depreciable asset, there needs to be a calculation of carrying amount using the depreciation variables applied before the impairment loss to determine what the carrying amount would have been if there had been no impairment loss. 
D)  If the individual asset is recorded under the cost model, then the increase in the carrying amount is recognised immediately in profit or loss.

Exam 7: Impairment of Assets

An impairment loss occurs when:

During 2021, Simpson Limited estimated that the carrying amount of goodwill was impaired by $20 000. In 2022, the company reassessed goodwill and determined that the goodwill initially acquired still existed. The appropriate accounting treatment in 2022 is:

Noble Limited estimated that it would receive future cash flows from the use of equipment as follows: End of Year 1 $20 000 End of Year 2 $70 000 End of Year 3 $40 000 End of Year 4 $30 000 The discount rate was determined as 5%. The 'value in use' of the equipment is:

Under the cost model, an impairment loss would be recorded as:

When evaluating whether an asset has been impaired, the carrying amount of the asset must be compared to its recoverable amount. Recoverable amount is the higher of:

As per AASB 136 Impairment of Assets, the recoverable amount test requires an entity to compare the fair value of an asset less costs to sell, with:

If an entity does not expect to recover the carrying amount of an asset, the entity has incurred a/an:

Which of the following assets need to be tested for impairment every year? I intangible assets with indefinite useful lives II intangible assets not yet available for use III intangible assets accounted for under the revaluation method IV goodwill acquired in a business combination

When assessing the recoverable amount of assets that have previously been subject to an impairment loss, which of the following indicators assist in providing external evidence that an impairment loss has reversed:

When an asset is measured using the revaluation model, any impairment loss is treated as:

Compose Limited estimated an impairment loss of $2 500 000 against its single cash-generating unit. The company had the following assets: headquarters building $3 000 000; plant $1 600 000; equipment $1 400 000. The net carrying amount of the plant after allocation of the impairment loss is:

Goodwill acquired under a business combination is subject to an impairment test every:

How often must an impairment test be applied to tangible assets?

When an asset is measured using the cost model, an impairment loss is:

Lacey Limited expected future cash flows from the use of plant as follows: End of Year 1 $14 000; End of Year 2 $15 000; End of Year 3 $12 000. The discount rate was determined as 9%. The value in use of the plant is:

In relation to the reversal of an impairment loss of an individual asset, which of the following is incorrect?

Accounting Regulation and the Conceptual Framework

Application of Accounting Theory

Fair Value Measurement

Inventories

Property, Plant and Equipment

Intangible Assets

Provisions, Contingent Liabilities and Contingent Assets

Employee Benefits

Leases

Financial Instruments

Income Taxes

Share Capital and Reserves

Share Based Payment

Revenue

Presentation of Financial Statements

Statement of Cash Flows

Accounting Policies and Other Disclosures

Earnings Per Share

Operating Segments

Related Party Disclosures

Sustainability and Corporate Social Responsibility Recording

Foreign Currency Transactions and Forward Exchange Contracts

Translation of Foreign Currency Financial Statements

Business Combinations

Consolidation: Controlled Entities

Consolidation: Wholly Owned Entities

Consolidation: Intragroup Transactions

Consolidation: Non-Controlling Interest

Consolidation: Other Issues

Associates and Joint Ventures

Joint Arrangements

Insolvency and Liquidation

Accounting for Mineral Resources

Agriculture

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