Question 1

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

Accepted Answer

A)  accumulated in a separate 'accumulated impairment losses' account. 
B)  set off against the balance of revenue. 
C)  taken directly to equity. 
D)  added to the balance of the accumulated depreciation and impairment losses account. 
A)  accumulated in a separate 'accumulated impairment losses' account. 
B)  set off against the balance of revenue. 
C)  taken directly to equity. 
D)  added to the balance of the accumulated depreciation and impairment losses account. D

Question 2

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

Question 3

When goodwill is acquired under a business combination it 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. A

Question 4

Value in use is:

Accepted Answer

A)  amount obtainable from disposal of an asset excluding any selling costs. 
B)  initial cost of an asset less any expected disposal costs. 
C)  incremental costs directly attributable to disposal of an asset. 
D)  the present value of future cash flows expected to be derived from an asset. 
A)  amount obtainable from disposal of an asset excluding any selling costs. 
B)  initial cost of an asset less any expected disposal costs. 
C)  incremental costs directly attributable to disposal of an asset. 
D)  the present value of future cash flows expected to be derived from an asset.

Question 5

AASB 136 Impairment of Assets requires which of the following disclosures for each class of assets:
I The line item(s) of the statement of profit or loss and other comprehensive income in which impairment losses are included.
II The amount of reversals of impairment losses during the period.
III The amount of impairment losses recognised directly in other comprehensive income.
IV The beginning and ending balances of any accumulated impairment account.

Accepted Answer

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

Question 6

During 2013, Sacco Limited estimated that the carrying amount of goodwill was impaired and wrote it down by $50 000. In 2014, the company reassessed goodwill and determined that the goodwill initially acquired still existed. The appropriate accounting treatment in 2014 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)  ignore the reversal as it is prohibited by AASB 136 Impairment of Assets. 
D)  increase goodwill by an adjustment to retained earnings. 
A)  reverse the previous goodwill impairment loss. 
B)  recognise the revalued amount of goodwill by an adjustment against the asset revaluation surplus account. 
C)  ignore the reversal as it is prohibited by AASB 136 Impairment of Assets. 
D)  increase goodwill by an adjustment to retained earnings.

Question 7

Constructor Limited estimated an impairment loss of $500 against its single cash-generating unit. The company had the following assets: headquarters building $1000; construction plant $600; equipment $400. The net carrying amount of the equipment after allocation of the impairment loss is:

Accepted Answer

A)  $200 
B)  $400 
C)  $300 
D)  $0 
A)  $200 
B)  $400 
C)  $300 
D)  $0

Question 8

Which of the following is NOT correct in relation to the reversal of an impairment loss of an individual asset:

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)  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. 
C)  If the individual asset is recorded under the cost model, then the increase in the carrying amount is recognised immediately in profit or loss. 
D)  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. 
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)  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. 
C)  If the individual asset is recorded under the cost model, then the increase in the carrying amount is recognised immediately in profit or loss. 
D)  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.

Question 9

The impairment test must be applied to tangible assets:

Accepted Answer

A)  at each balance date. 
B)  every three years. 
C)  at each reporting date including interim reporting dates such as half-year. 
D)  only if there is an indication that the asset may be impaired. 
A)  at each balance date. 
B)  every three years. 
C)  at each reporting date including interim reporting dates such as half-year. 
D)  only if there is an indication that the asset may be impaired.

Question 10

Nguyen Limited estimated that it would receive future cash flows from the use of equipment as follows:
End of Year 1 $10 000
End of Year 2 $50 000
End of Year 3 $20 000
The discount rate was determined as 8%. The 'value in use' of the equipment is:

Accepted Answer

A)  $80 000. 
B)  $73 600. 
C)  $68 000. 
D)  $63 500. 
A)  $80 000. 
B)  $73 600. 
C)  $68 000. 
D)  $63 500.

Question 11

At reporting date Guilder Limited estimated an impairment loss of $50 000 against its single cash-generating unit. The company had the following assets: headquarters building $100 000; plant $60 000; equipment $40 000. The net carrying amount of the plant after allocation of the impairment loss is:

Accepted Answer

A)  $60 000. 
B)  $45 000. 
C)  $35 000. 
D)  $10 000. 
A)  $60 000. 
B)  $45 000. 
C)  $35 000. 
D)  $10 000.

Question 12

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

Question 13

An impairment loss occurs when:

Accepted Answer

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

Question 14

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

Question 15

Under AASB 136 Impairment of Assets, which of the following identifies an impairment of an asset and describes the appropriate accounting treatment using the cost model?

Accepted Answer

A)   
B)   
C)   
D)   
A)   
B)   
C)   
D)

Question 16

Jam Pty Ltd has two cash generating units. CGU A had a carrying amount of $700 and value in use of $750. CGU B has a carrying amount of $900 and a value in use of $800. The carrying amount of the head office assets is $400. CGU A and B utilise the head office services equally. The impairment loss for CGU A is:

Accepted Answer

A)  $0. 
B)  $50. 
C)  $150. 
D)  $350. 
A)  $0. 
B)  $50. 
C)  $150. 
D)  $350.

Question 17

When assessing the recoverable 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)  the asset's market value has decreased significantly during the period. 
B)  significant changes with an adverse effect on the entity have taken place. 
C)  market interest rates have decreased during the period. 
D)  internal reporting sources indicate that the economic performance of the asset will not be as good as expected. 
A)  the asset's market value has decreased significantly during the period. 
B)  significant changes with an adverse effect on the entity have taken place. 
C)  market interest rates have decreased during the period. 
D)  internal reporting sources indicate that the economic performance of the asset will not be as good as expected.

Question 18

Candy Limited expected future cash flows from the use of equipment as follows: End of Year 1 $4000; End of Year 2 $5000; End of Year 3 $2000. The discount rate was determined as 5%. The value in use of the equipment is:

Accepted Answer

A)  $10 073. 
B)  $10 576. 
C)  $11 000. 
D)  $11 550. 
A)  $10 073. 
B)  $10 576. 
C)  $11 000. 
D)  $11 550.

Question 19

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

Accepted Answer

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

Question 20

An appropriate journal entry to recognise an impairment loss under the cost model is:

Accepted Answer

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

Exam 7: Impairment of Assets

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

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

Value in use is:

During 2013, Sacco Limited estimated that the carrying amount of goodwill was impaired and wrote it down by $50 000. In 2014, the company reassessed goodwill and determined that the goodwill initially acquired still existed. The appropriate accounting treatment in 2014 is:

Constructor Limited estimated an impairment loss of $500 against its single cash-generating unit. The company had the following assets: headquarters building $1000; construction plant $600; equipment $400. The net carrying amount of the equipment after allocation of the impairment loss is:

Which of the following is NOT correct in relation to the reversal of an impairment loss of an individual asset:

The impairment test must be applied to tangible assets:

Nguyen Limited estimated that it would receive future cash flows from the use of equipment as follows: End of Year 1 $10 000 End of Year 2 $50 000 End of Year 3 $20 000 The discount rate was determined as 8%. The 'value in use' of the equipment is:

At reporting date Guilder Limited estimated an impairment loss of $50 000 against its single cash-generating unit. The company had the following assets: headquarters building $100 000; plant $60 000; equipment $40 000. The net carrying amount of the plant after allocation of the impairment loss is:

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

An impairment loss occurs when:

According to 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:

Under AASB 136 Impairment of Assets, which of the following identifies an impairment of an asset and describes the appropriate accounting treatment using the cost model?

When assessing the recoverable 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:

Candy Limited expected future cash flows from the use of equipment as follows: End of Year 1 $4000; End of Year 2 $5000; End of Year 3 $2000. The discount rate was determined as 5%. The value in use of the equipment is:

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

An appropriate journal entry to recognise an impairment loss under the cost model is:

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 Reporting

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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