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Chapter 23
Impairment of Assets
1. Under PAS 36 Impairment of Assets, which of the following statements best describes ‘value in
use’?
a. The present value of estimated future cash #ows expected to arise from the continuing use of
an asset and from its ultimate disposal.
b. The amount of cash or cash equivalents that could currently be obtained by selling an asset
in an orderly disposal.
c. The net amount which an entity expects to obtain for an asset at the end of its useful life.
d. The amount at which an asset could be exchanged between knowledgeable, willing parties
in an arm’s length transaction.
2. Under PAS 36 Impairment of Assets, which of the following terms best describes the higher of an
asset’s fair value less costs of disposal and its value in use?
a. Recoverable amount
b. Revalued amount
c. Depreciable amount
d. Carrying amount
3. Under PAS 36 Impairment of assets, which of the following statements best describes the term
‘impairment loss’?
a. The removal of an asset from an entity’s statement of ,nancial position
b. The amount by which the carrying amount of an asset exceeds its recoverable amount
c. The systematic allocation of an asset’s cost less residual value over its useful life
d. The amount by which the recoverable amount of an asset exceeds its carrying amount
4. According to PAS 36 Impairment of Assets, which of the following terms is de,ned as: “The
smallest identi,able group of assets that generates cash in#ows that are largely independent of
the cash in#ows from other assets”?
a. Non-current assets
b. A cash-operating unit
c. An operating segment
d. A cash-generating unit
5. PAS 36 Impairment of assets should be applied in accounting for the impairment of which of the
following types of asset?
a. Assets arising from construction contracts
b. Non-current assets held for sale
c. Investment properties measured at fair value
d. Non-current assets measured at cost
6. According to PAS 36 Impairment of assets, which of the following are relevant in determining a
non-current asset’s ‘value in use’?
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I. The expected future cash #ows from the asset
II. The carrying amount of the asset
III. The future annual depreciation expense in respect of the asset
IV. The time value of money
a. I, II, III c. I, IV
b. II, III, IV d. I, II, IV
7. An entity is considering whether to apply an impairment test to an individual asset or to the
cash-generating unit to which that asset belongs. Are the following statements true or false,
according to PAS 36 Impairment of assets?
1) If the individual asset does not generate cash in#ows that are largely independent of those
from other assets, then the cash-generating unit should be identi,ed.
2) If the individual asset generates an insigni,cant proportion of the cash in#ows of the entity
as a whole, then the cash-generating unit should not be identi,ed.
Statement (1) Statement (2)
a. False False
b. False True
c. True False
d. True True
8. The Naylor Company has determined that it needs to recognize an impairment loss on each of
two non-current assets; plant and land. The relevant amounts are as follows:
Plant Land
Original cost ₱700,000 ₱1,400,000
Previous revaluations Nil ₱ 450,000
Existing carrying amount ₱700,000 ₱1,850,000
Impairment loss to be recognized in year ₱200,000 ₱ 300,000
According to PAS 36 Impairment of Assets, how should each of the impairment losses be recognized?
Plant Land
a. In pro,t or loss In pro,t or loss
b. In pro,t or loss In other comprehensive income
c. In other comprehensive income In pro,t or loss
d. In other comprehensive income In other comprehensive income
9. On 1 January 20X2 The Prosper Company acquired a non-current asset with an estimated useful
life of 8 years for ₱320,000. Non-current assets are accounted for under the cost model and
depreciation is charged by the straight-line method.
On 1 January 20X7 an impairment review identi,ed an impairment loss of ₱10,000 and the
remaining useful life was revised to four years. Are the following statements true or false,
according to PAS 36 Impairment of Assets?
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1) Future depreciation expenses should be measured by reference to the carrying amount after
deducting the impairment loss.
2) Future depreciation expenses should be measured by reference to the new estimate of the
remaining useful life.
Statement (1) Statement (2)
a. False False
b. False True
c. True False
d. True True
10. In testing a cash generating unit (CGU) for impairment the, boCom-up test means that
