Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao
Since 1977
FAR
FAR.3211-Impairment of Nonfinancial Assets
OCAMPO/OCAMPO
MAY 2022
DISCUSSION PROBLEMS
1. PAS 36 applies to which of the following assets?
a. Financial assets within the scope of PFRS 9
b. Inventories
c. Non-current assets held for sale
d. Intangible assets
2. PAS 36 does not apply to which of the following
assets?
a. Investment in associate
b. Investment property that is measured using the
cost model
c. Property, plant and equipment that is measured
using the revaluation model
d. Biological assets measured at fair value less costs
to sell
3. In accordance with PAS 36, an asset is impaired
a. When its carrying amount exceeds recoverable
amount.
b. When its carrying amount exceeds net realizable
value.
c. When its carrying amount exceeds fair value.
d. When its carrying amount is less than the
recoverable amount.
4. Recoverable amount is
a. The amount at which an asset is recognized after
deducting accumulated depreciation (amortization)
and accumulated impairment losses thereon.
b. The price that would be received to sell an asset in
an orderly transaction between market participants
at the measurement date less incremental costs
directly attributable to the disposal of an asset or
cash-generating unit, excluding finance costs and
income tax expense.
c. The present value of the future cash flows
expected to be derived from an asset or cashgenerating unit.
d. The higher of an asset's fair value less costs of
disposal and its value in use.
5. Costs of disposal are incremental costs directly
attributable to the disposal of an asset or cashgenerating unit. Examples of such costs include
a. Finance costs
b. Income tax expense
c. Termination benefits (as defined in PAS 19)
d. Direct incremental costs to bring an asset into
condition for its sale
6. Costs of disposal do not include
a. Legal costs
b. Stamp duty and similar transaction taxes
c. Costs of removing the asset
d. Costs associated with reducing or reorganizing a
business following the disposal of an asset
Page 1 of 7
7. Which of the following is incorrect regarding identifying
an asset that may be impaired?
a. At the end of each reporting period, an entity is
required to assess whether there is any indication
that an asset may be impaired.
b. If there is an indication that an asset may be
impaired, then the asset's recoverable amount
must be calculated.
c. An indication that an asset may be impaired may
indicate that the asset's useful life, depreciation
method, or residual value may need to be
reviewed and adjusted.
d. Only internal indicators of impairment should be
considered.
8. Internal sources of information indicating that an asset
may be impaired include
a. There are observable indications that the asset’s
value has declined during the period significantly
more than would be expected as a result of the
passage of time or normal use.
b. Significant changes with an adverse effect on the
entity have taken place during the period, or will
take place in the near future, in the technological,
market, economic or legal environment in which
the entity operates or in the market to which an
asset is dedicated.
c. Market interest rates or other market rates of
return on investments have increased during the
period, and those increases are likely to affect the
discount rate used in calculating an asset’s value in
use and decrease the asset’s recoverable amount
materially.
d. Evidence is available of obsolescence or physical
damage of an asset.
9. Riley acquired a non-current asset on Jan. 1, 2018 at a
cost of P100,000 which had a useful economic life of
ten years and a nil residual value. The asset had been
correctly depreciated up to Dec. 31, 2022. At that date
the asset was damaged and an impairment review was
performed. On Dec. 31, 2022, the fair value of the
asset less costs of disposal was P30,000 and the
expected future cash flows were P8,500 per annum for
the next five years. The appropriate discount rate is
10% and a five-year annuity of P1 per annum at 10%
would have a present value of P3.79.
What amount would be charged to profit or loss for the
impairment of this asset for the year ended Dec. 31,
2022?
a. P17,785
c. P30,000
b. P20,000
d. P32,215
www.teamprtc.com.ph
FAR.3211
EXCEL PROFESSIONAL SERVICES, INC.
10. Twinkle Corporation has one division that performs
machining operations on parts that are sold to
contractors. A group of machines have an aggregate
cost and accumulated depreciation on Dec. 31, 2022
as follows:
Machinery
Accumulated depreciation
P90,000,000
30,000,000
The machines have an average remaining life of 4
years. The fair value less costs of disposal of this group
of machines in an active market is determined to be
P45,000,000. The financial forecast for this group of
machines reveals the following cash inflows and cash
outflows for the next four years:
2023
2024
2025
2026
Cash inflows
30,000,000
32,000,000
26,000,000
16,000,000
Cash outflows
12,000,000
17,000,000
14,000,000
6,000,000
Compute for the impairment loss in 2022 assuming
that the appropriate discount rate is 8%.
a. P13,598,700
c. P15,000,000
b. P14,299,350
d. P
0
SOLUTION GUIDE:
Net
cash flows
2023
18,000,000
2024
15,000,000
2025
12,000,000
2026
10,000,000
Period
1
2
3
4
PVF@8%
0.9259
0.8573
0.7938
0.7350
PV,
12/31/22
16,666,200
12,859,500
9,525,600
7,350,000
46,401,300
11. Autobots Bottling purchased for P800,000 a trademark
for a very successful soft drink it markets under the
name OK!. The trademark was determined to have an
indefinite life.
A competitor recently introduced a
product that is in direct competition with the OK!
product, thus suggesting the need for an impairment
test. Data gathered by Autobots suggests that the
useful life of the trademark is still indefinite, but the
cash flows expected to be generated by the trademark
have been reduced either to P30,000 per year (with a
probability of 80%) or to P60,000 per year (with 20%
probability). The appropriate risk-free interest rate is
5%. The appropriate risk-adjusted interest rate is
10%.
The loss on impairment of trademark is
a. P440,000
c. P200,000
b. P320,000
d. P 80,000
12. When deciding on the discount rate that should be
used, which factors should be taken into account?
a. Pretax rates
b. The time value of money
c. Risks that relate to the asset for which future cash
flow estimates have not been adjusted
d. All of these.
13. When calculating the estimates of future cash flows,
which of the following cash flows should not be
included?
a. Cash flows from the sale of assets produced by the
asset
b. Cash outflows on the maintenance of the asset
c. Cash flows from disposal
d. Income tax payment
Page 2 of 7
14. An entity has an oil platform in the sea. The entity has
to decommission the platform at the end of its useful
life, and a provision was set up at the commencement
of production. The carrying amount of the provision is
P8 million. The entity has received an offer of P20
million (selling costs P1 million) for the rights to the oil
platform, which reflects the fact that the owners have
to decommission it at the end of its useful life. The
value-in-use of the oil platform is P26 million ignoring
decommissioning costs. The current carrying amount
of the oil platform is P28 million. How much should be
recognized as impairment loss?
a. P10,000,000
c. P1,000,000
b. P 2,000,000
d. P
0
15. The recoverable amount of asset to be disposed of is
a. Fair value less costs of disposal
b. Value in use
c. The higher of a and b
d. The lower of a and b
Use the following information for the next two questions.
An entity has a building classified as investment property.
The building was acquired on Jan. 1, 2018 at a cost of
P50,000,000. The building has an estimated life of 25
years and nil residual value. The following information is
available:
Fair value
Costs of disposal
Value in use
12/31/21
P45,000,000
4,000,000
43,000,000
12/31/22
P42,000,000
3,500,000
39,500,000
16. If the entity used the cost model, the total expense to
be recognized in 2022 profit or loss is
a. P3,500,000
c. P2,000,000
b. P2,500,000
d. P 500,000
17. If the entity used the fair value model instead of cost
model, the 2022 profit would have been
a. The same
c. Lower by P1,000,000
b. Higher by P500,000
d. Lower by P500,000
Use the following information for the next three questions.
An entity is developing a new production process. During
2021, expenditure incurred was P1,000,000, of which
P900,000 was incurred before Dec. 1, 2021 and P100,000
was incurred between Dec. 1, 2021 and Dec. 31, 2021.
The entity is able to demonstrate that, at Dec. 1, 2021,
the production process met the criteria for recognition as
an intangible asset. The recoverable amount of the knowhow embodied in the process (including future cash
outflows to complete the process before it is available for
use) is estimated to be P500,000.
During 2022, expenditure incurred is P2,000,000. At the
end of 2022, the recoverable amount of the know-how
embodied in the process (including future cash outflows to
complete the process before it is available for use) is
estimated to be P1,900,000.
18. The impairment loss to be recognized in 2021 is
a. P1,000,000
c. P100,000
b. P 500,000
d. Nil
19. The impairment loss to be recognized in 2022 is
a. P600,000
c. P100,000
b. P200,000
d. Nil
www.teamprtc.com.ph
FAR.3211
EXCEL PROFESSIONAL SERVICES, INC.
20. The intangible asset shall be tested for impairment
a. Annually, if there is any indication of impairment.
b. Annually, irrespective of whether there is any
indication of impairment.
c. Annually, irrespective of whether there is any
indication of impairment when the asset is already
available for use.
d. The intangible asset is not subject to impairment
since it is not yet available for use.
21. Which statement is incorrect regarding recognition and
measurement of an impairment loss?
a. An
impairment
loss
shall
be
recognized
immediately in profit or loss, unless the asset is
carried at revalued amount in accordance with
another Standard.
b. Any impairment loss of a revalued asset shall be
treated as a revaluation decrease in accordance
with that other Standard.
c. After the recognition of an impairment loss, the
depreciation (amortization) charge for the asset
shall be adjusted in future periods to allocate the
asset’s revised carrying amount, less its residual
value (if any), on a systematic basis over its
remaining useful life.
d. None of these.
22. Skipton Co. bought land in 2013 at a cost of P300,000.
In 2016 the land was revalued to P350,000 and in
2021 it was revalued again to P400,000. At the end of
2022 the land had a value in use of P270,000 and the
fair value less costs of disposal was P285,000.
How much of the impairment loss should be recognized
in 2022 profit or loss?
a. P115,000
c. P15,000
b. P 30,000
d. Nil
23. Recoverable amount is determined for an individual
asset, unless the asset does not generate cash inflows
that are largely independent of those from other assets
or groups of assets. If this is the case,
a. Recoverable amount is determined for the cashgenerating unit to which the asset belongs.
b. Recoverable amount is the value-in-use.
c. Recoverable amount is the fair value less costs of
disposal.
d. Recoverable amount is the carrying value.
24. What is a ‘cash generating unit’ as defined in PAS 36?
a. 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.
b. Operations and cash flows that can be clearly
distinguished, operationally and for financial
reporting purposes, from the rest of the entity.
c. A group of assets to be disposed of, by sale or
otherwise, together as a group in a single
transaction, and liabilities directly associated with
those assets that will be transferred in the
transaction.
d. Assets other than goodwill that contribute to the
future cash flows of both the cash-generating unit
under review and other cash-generating units.
Page 3 of 7
25. Which statement is incorrect regarding impairment of
goodwill in accordance with PAS 36?
a. To test for impairment, goodwill must be allocated
to each of the acquirer's cash-generating units, or
groups of cash-generating units, that are expected
to benefit from the synergies of the combination.
b. A cash-generating unit to which goodwill has been
allocated shall be tested for impairment at least
annually by comparing the carrying amount of the
unit, including the goodwill, with the recoverable
amount of the unit.
c. Reversal of an impairment loss for goodwill is
prohibited.
d. None of these.
26. Los Company purchased Banos Company for
P100,000,000. The net assets of Banos Company on
the date of acquisition amounted to P80,000,000.
Thus, there is a goodwill of P20,000,000.
Banos
Company has three segments, each of which is
considered a cash generating unit. The goodwill is
allocated respectively to segments One, Two and
Three, P5,000,000, P6,000,000 and P9,000,000.
On Dec. 31, 2022, Segment One suffered significant
losses and its recoverable amount is P30,000,000. On
Dec. 31, 2022, the carrying amounts are as follows:
Segment One
Segment Two
Segment Three
Goodwill
P28,000,000
50,000,000
67,000,000
20,000,000
In its 2022 income statement, Los Company should
report impairment loss at
a. P3,000,000
c. P5,000,000
b. P2,000,000
d. P1,000,000
27. Which statement is incorrect regarding allocation of
impairment loss in a cash-generating unit in
accordance with PAS 36?
a. First, reduce the carrying amount of any goodwill
allocated to the cash-generating unit.
b. Then, reduce the carrying amounts of the other
assets of the unit pro rata on the basis of the
carrying amount of each asset in the unit.
c. The carrying amount of an asset should not be
reduced below the highest of its fair value less
costs of disposal (if determinable), its value in use
(if determinable) and zero.
d. None, all the statements are correct.
28. An entity has determined that one of its cashgenerating units has sustained an impairment loss of
P450,000. The carrying amounts of the assets within
the unit are as follows:
Goodwill
Asset 1
Asset 2
Asset 3
Total
P
200,000
300,000
400,000
100,000
P1,000,000
The estimated fair value less costs of disposal of Asset
1 is P230,000.
How much is the carrying amount of Asset 3 after
impairment loss is recognized?
a. P16,667
c. P64,000
b. P56,875
d. P68,750
www.teamprtc.com.ph
FAR.3211
EXCEL PROFESSIONAL SERVICES, INC.
29. Jenus owns a company called Klassic Kars.
from Jenus' consolidated statement of
position relating to Klassic Kars are:
Goodwill
Franchise costs
Restored vehicles (at cost)
Plant
Other net assets
Extracts
financial
P 80,000,000
50,000,000
90,000,000
100,000,000
50,000,000
P370,000,000
An impairment review has estimated that the value of
Klassic Kars as a going concern is only P240 million.
The franchise has a recoverable amount of P30 million.
The restored vehicles have an estimated realizable
value of P115 million.
How much is the carrying amount of Plant after
impairment loss is recognized?
a. P66,666,667
c. P80,000,000
b. P75,000,000
d. P82,800,000
SOLUTION GUIDE:
30. As of Jan. 1, 2022, Entity A owns 80% of the shares of
Entity B. Entity B is a (single) cash-generating unit. In
accordance with PIC Q&A 2018-02, in which of the
following does an entity need to gross up goodwill for
any amount of goodwill not recognized due to a
current or previously outstanding non-controlling
interest when performing a goodwill impairment test
related to the subsidiary at Dec. 31, 2022?
a. On June 30, 2022, Entity A acquires the remaining
20% ownership interest in Entity B. Entity A
previously measured the non-controlling interest at
initial recognition at its proportionate interest in
the net identifiable assets.
b. On June 30, 2022, Entity A acquires 10% of the
remaining ownership interest in Entity B, leaving a
non-controlling interest of 10% as of December
31, 2022. Entity A previously measured the noncontrolling interest at initial recognition at its fair
value.
c. On June 30, 2022, Entity A sells 20% of the
ownership interest in Entity B, resulting in a noncontrolling interest of 40% as of December 31,
2022. Entity A previously measured the noncontrolling interest at initial recognition at its fair
value.
d. None of these.
31. Which statement is incorrect regarding ‘corporate
assets’?
a. Corporate assets are assets other than goodwill
that contribute to the future cash flows of both the
cash-generating unit under review and other cashgenerating units.
b. Corporate assets include group or divisional assets
such as the building of a headquarters or a division
of the entity, EDP equipment or a research center.
Page 4 of 7
c.
The distinctive characteristics of corporate assets
are that they generate cash inflows independently
of other assets or groups of assets and their
carrying amount can be fully attributed to the
cash-generating unit under review.
d. If there is an indication that a corporate asset may
be impaired, recoverable amount is determined for
the cash-generating unit or group of cashgenerating units to which the corporate asset
belongs, and is compared with the carrying
amount of this cash-generating unit or group of
cash-generating units.
32. Which statement is incorrect regarding the reversal of
an impairment loss?
a. The increased carrying amount of asset other than
goodwill attributable to a reversal of an impairment
loss shall not exceed the carrying amount that
would have been determined had no impairment
loss been recognized for the asset in prior years.
b. Reversal of an impairment loss is recognized as
income in profit or loss.
c. Depreciation for future periods is adjusted.
d. Reversal of an impairment loss is allowed when the
recoverable amount of the asset becomes higher
than its carrying amount because of the
‘unwinding’ of the discount.
33. Internal sources of information indicating that an
impairment loss recognized in prior periods for an
asset may no longer exist or may have decreased
include
a. There are observable indications that the asset’s
value has increased significantly during the period.
b. Significant changes with a favorable effect on the
entity have taken place during the period, or will
take place in the near future, in the technological,
market, economic or legal environment in which
the entity operates or in the market to which an
asset is dedicated.
c. Market interest rates or other market rates of
return on investments have decreased during the
period, and those increases are likely to affect the
discount rate used in calculating an asset’s value in
use and increase the asset’s recoverable amount
materially.
d. Evidence is available from internal reporting that
indicates that the economic performance of an
asset is, or will be, better than expected.
Use the following information for the next two questions.
Twig Company reported an impairment loss of P4,000,000
in its income statement for the year 2021. This loss was
related to an equipment which was acquired on Jan. 1,
2020 with cost of P25,000,000, useful life of 10 years and
no residual value. The straight-line method is used in
recording depreciation of this asset. On Dec. 31, 2021
statement of financial position, Twig reported this asset at
P16,000,000 which is the recoverable amount on that
date. On Dec. 31, 2022, Twig decided to measure the
asset using revaluation model.
This asset was then
appraised at a fair value of P19,000,000.
34. The gain on impairment recovery to be recognized in
2022 profit or loss is
a. P5,000,000
c. P3,500,000
b. P4,000,000
d. P
0
35. The revaluation increase to be recognized in 2022
other comprehensive income is
a. P5,000,000
c. P1,500,000
b. P3,000,000
d. P
0
www.teamprtc.com.ph
FAR.3211
EXCEL PROFESSIONAL SERVICES, INC.
Use the following information for the next two questions:
One of the cash-generating units of Tweak Corporation is
that associated with the manufacture of wine barrels. At
Dec. 31, 2021, Tweak Corporation believed, based on an
analysis of economic indicators, that the assets of the unit
were impaired. The carrying amounts of the assets in the
unit at Dec. 31, 2021 were:
Buildings, net
(Depreciated at P60,000 per annum)
Machinery, net
(Depreciated at P45,000 per annum)
Goodwill
Inventory
Receivables, net
(Allow. for doubtful debts of P5,000)
Cash
Total
Computation of limit on reversal of impairment loss
Buildings
Buildings (P240T-P60T)
Machinery (P180T-P45T)
180,000
15,000
80,000
CA, 12/31/22- w/ impairment
35,000
20,000
P570,000
During
2022,
Tweak
Corporation
increased
the
depreciation charge on buildings to P65,000 per annum,
and to P50,000 per annum for factory machinery. The
inventory on hand at Dec. 31, 2021 was sold by the end of
2022. At Dec. 31, 2022, Tweak Corporation, due to a
return in the market to the use of traditional barrels for
wines and an increase in wine production, assessed the
recoverable amount of the cash-generating unit to be
P20,000 greater than the carrying amount of the unit.
36. How much is the carrying amount of buildings at Dec.
31, 2021 after allocating impairment loss?
a. P230,400
c. P231,028
b. P224,300
d. P228,571
37. How much is the carrying amount of factory machinery
at Dec. 31, 2022 after the reversal of impairment loss?
a. P135,000
c. P131,322
b. P131,793
d. P123,271
SOLUTION for #36:
CA before
impairment
Allocated
loss
CA after
impairment
Buildings
P240,000
(P 9,600)
P230,400
Machinery
180,000
( 7,200)
172,800
Goodwill
15,000
(15,000)
-
Inventory
80,000
( 3,200)
76,800
Receivables
35,000
-
35,000
Cash
20,000
-
20,000
Total
P570,000
(35,000)
P535,000
Machinery
CA, 12/31/22- w/o impairment
P240,000
Tweak Corporation determined the value in use of the unit
to be P535,000. The receivables were considered to be
collectible, except those considered doubtful.
Page 5 of 7
SOLUTION for #37:
Buildings (P230.4T-P65T)
P180,000
P135,000
165,400
Machinery (P172.8T-P50T)
Reversal limit
.
122,800
P 14,600
P 12,200
Allocation of reversal of impairment loss
CA before
reversal
Allocated
reversal
CA after
reversal
Buildings
P165,400
P11,478
P176,878
Machinery
122,800
8,522
131,322
P288,200
P20,000
Total
38. An entity shall disclose the following for each class of
assets:
I. The amount of impairment losses recognized in
profit or loss during the period and the line item(s)
of the statement of comprehensive income in
which those impairment losses are included.
II. The amount of reversals of impairment losses
recognized in profit or loss during the period and
the line item(s) of the statement of comprehensive
income in which those impairment losses are
reversed.
III. The amount of impairment losses on revalued
assets recognized in other comprehensive income
during the period.
IV. The amount of reversals of impairment losses on
revalued assets recognized in other comprehensive
income during the period.
a.
b.
I, II and IV only
II, and IV only
www.teamprtc.com.ph
c. II, III and IV only
d. I, II, III and IV
- done -
FAR.3211
EXCEL PROFESSIONAL SERVICES, INC.
ILLUSTRATIVE PROBLEMS
PROBLEM NO. 1 – Assets subject to impairment in accordance with PAS 36
_____
1.
Inventory
_____
2.
Biological asset measured at fair value less costs to sell
_____
3.
Biological asset not measured at fair value less costs to sell
_____
4.
Property, plant and equipment measured under the cost model
_____
5.
Property, plant and equipment measured under the revaluation model
_____
6.
Investment property measured under the cost model
_____
7.
Investment property measured under the fair value model
_____
8.
Intangible asset measured under the cost model
_____
9.
Intangible asset measured under the revaluation model
_____
10.
Exploration and evaluation asset measured under the cost model
_____
11.
Exploration and evaluation asset measured under the revaluation model
_____
12.
Non-current asset held for sale
_____
13.
Financial asset at fair value through profit or loss
_____
14.
Financial asset at fair value through other comprehensive income
_____
15.
Financial asset at amortized cost
_____
16.
Investment in associate
_____
17.
Derivative asset
_____
18.
Contract asset
_____
19.
Deferred tax asset
_____
20.
Pension asset
REQUIRED:
YES OR NO. Write YES if the asset is within the scope of PAS 36. If not, write NO.
ANSWERS:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
NO
NO
YES
YES
YES
YES
NO
YES
YES
YES
YES
NO
NO
NO
NO
YES
NO
NO
NO
NO
Page 6 of 7
www.teamprtc.com.ph
FAR.3211
EXCEL PROFESSIONAL SERVICES, INC.
PROBLEM NO. 2 – Indicators of impairment
_____
1.
Evidence is available of obsolescence or physical damage of an asset.
_____
2.
_____
3.
There are observable indications that the asset’s value has declined during the period significantly
more than would be expected as a result of the passage of time or normal use.
Market interest rates on investments have decreased during the period.
_____
4.
The asset becomes idle.
_____
5.
_____
6.
Significant changes with an adverse effect on the entity have taken place during the period, or will
take place in the near future, in the technological, market, economic or legal environment in which the
entity operates or in the market to which an asset is dedicated.
Plans to discontinue or restructure the operation to which an asset belongs.
_____
7.
Plans to dispose of an asset before the previously expected date.
_____
8.
_____
9.
_____
10.
Market interest rates or other market rates of return on investments have increased during the period,
and those increases are likely to affect the discount rate used in calculating an asset’s value in use and
decrease the asset’s recoverable amount materially.
Operating losses or net cash outflows for the asset, when current period amounts are aggregated with
budgeted amounts for the future.
Reassessing the useful life of an asset as finite rather than indefinite.
_____
11.
_____
12.
Evidence is available from internal reporting that indicates that the economic performance of the asset
is, or will be, better than expected.
The carrying amount of the net assets of the entity is more than its market capitalization.
REQUIRED:
YES OR NO. Write YES if the item is an impairment indicator. If not, write NO. If an impairment indicator, specify
whether external or internal.
ANSWERS:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
YES,
YES,
NO
YES,
YES,
YES,
YES,
YES,
YES,
YES,
NO
YES,
Internal
External
Internal
External
Internal
Internal
External
Internal
Internal
External
J - end of FAR.3211 - J
Page 7 of 7
www.teamprtc.com.ph
FAR.3211