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Mirchawala’s Hub of Accountancy:
FR: Financial Reporting:

IAS 36 & IAS 40:
Question#1:
A cash-generating unit comprises the following assets:
$'000
Building 700
Plant and equipment 200
Goodwill 90
Current assets 20
1,010
One of the machines, carried at $40,000, is damaged and will have to be scrapped. The recoverable
amount of the cash-generating unit is estimated at $750,000.
What will be the carrying amount of the building when the impairment loss has been recognized?
(to the nearest $'000)
A. $597,000
B. $577,000
C. $594,000
D. $548,000
Question#2:
What is the recoverable amount of an asset?
A. Its current market value less costs of disposal
B. The lower of carrying amount and value in use
C. The higher of fair value less costs of disposal and value in use
D. The higher of carrying amount and market value
Question#3:
A machine has a carrying amount of $85,000 at the year end of 31 March 20X9. Its market value is
$78,000 and costs of disposal are estimated at $2,500. A new machine would cost $150,000. The
company which owns the machine expects it to produce net cash flows of $30,000 per annum for the
next three years. The company has a cost of capital of 8%.
What is the impairment loss on the machine to be recognized in the financial statements at 31 March
20X9?
A. $7,687
B. $9,500
C. $1,667
D. $2,200
Question#4:
IAS 36 Impairment of Assets suggests how indications of impairment might be recognized.
Which TWO of the following would be external indicators that one or more of an entity's assets may
be impaired?
A. An unusually significant fall in the market value of one or more assets
B. Evidence of obsolescence of one or more assets
C. A decline in the economic performance of one or more assets
D. An increase in market interest rates used to calculate value in use of the assets
From the desk of Sir Mustafa Ahmed Mirchawala: Page 1

Question#5:
The following information relates to an item of plant.
(i) Its carrying amount in the statement of the financial position is $3 million.
(ii) The company has received an offer of $2.7 million from a company in Japan interested in buying
the plant.
(iii) The present value of the estimated cash flows from continued use of the plant is $2.6 million.
(iv) The estimated cost of shipping the plant to Japan is $50,000.
What is the amount of the impairment loss that should be recognized on the plant $ 0.4m ?
Question#6:
A business which comprises a single cash-generating unit has the following assets.
$m
Goodwill 3
Patent 5
Property 10
Plant and equipment 15
Net current assets 2
35
Following an impairment review it is estimated that the value of the patent is $2 million and the
recoverable amount of the business is $24 million.
At what amount should the property be measured following the impairment review?
A. $8 million
B. $10 million
C. $7 million
D. $5 million
Question#7:
Riley acquired a non-current asset on 1 October 20W9 (i.e. ten years before 20X9) at a cost of $100,000
which had a useful life of ten years and a nil residual value. The asset had been correctly depreciated up
to 30 September 20X4. At that date the asset was damaged and an impairment review was performed.
On 30 September 20X4, the fair value of the asset less costs of disposal was $30,000 and the expected
future cash flows were $8,500 per annum for the next five years. The current cost of capital is 10% and a
five-year annuity of $1 per annum at 10% would have a present value of $3.79.
What amount would be charged to profit or loss for the impairment of this asset for the year ended
30 September 20X4?
A. $17,785
B. $20,000
C. $30,000
D. $32,215

Question#8:
The net assets of Fyngle, a cash generating unit (CGU) is:
$
Property, plant and equipment 200,000
Allocated goodwill 50,000
Product patent 20,000
Net current assets (at net realizable value) 30,000
300,000
As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000.
What would be the value of Fyngle's property, plant and equipment after the allocation of the
impairment loss?
A. $154,545
B. $170,000
C. $160,000
D. $133,333
Question#9:
Which of the following is NOT an indicator of impairment under IAS 36 Impairment of Assets?
A. Advances in the technological environment in which an asset is employed have an adverse impact
on its future use
B. An increase in interest rates which increases the discount rate an entity uses
C. The carrying amount of an assets is higher than the entity's number of shares in issue multiplied
by its share price
D. The estimated net realizable value of inventory has been reduced due to fire damage although this
value is greater than its carrying amount
Question#10:
Which of the following indicators would not be recognized as suggestion that assets are impaired?
A. The national government has placed restrictions on the quantity of goods that the entity is
permitted to produce.
B. The carrying amount of net assets exceeds the entity’s market capitalization
C. A fall in market rate of interest.
D. The entity’s board of directors is planning to announce to the media a significant change in
strategy for the entity moving from manufacturing to service.
Question#11:
An entity purchased an investment property on 1 January 20X3 for a cost of $3.5m. The property had an
estimated useful life of 50 years, with no residual value, and at 31 December 20X5 had a fair value of $4.2
million. On 1 January 20X6 the property was sold for net proceeds of $4m.
A. Cost: $0.71m FV: ($0.2m)
B. Cost: $0.2m FV $0.2m
C. Cost $0.5m FV ($0.2m)
D. Cost $0.71m FV: $0.5m

Question#12:
An investment property with a useful life of 10 years was purchased by Akorn on 1 January 20X9 for
$200,000. By 31 December 20X9 the fair value of the property had risen to $300,000. Akorn measures
its investment properties under the fair value model.
What values would go through the statement of profit or loss in the year?
A. Gain: $100,000 and Depreciation $30,000
B. Gain: $0 and Depreciation of $30,000
C. Gain: $100,000 and Depreciation of 0
D. Gain: $120,000 and Depreciation of $20,000
Question#13:
Which one of the following is NOT TRUE concerning the treatment of investment properties under IAS
40?
A. Following initial recognition, investment property can be held at either cost or fair value.
B. If an investment property is held at fair value, this must be applied to all of the entity's investment
property.
C. An investment property is initially measured at cost, including transaction costs.
D. A gain or loss arising from a change in the fair value of an investment property should be recognized
in other comprehensive income.
Question#14:
Candy acquired a building with a 40-year life for its investment potential for $8 million on 1 January 20X3.
At 31 December 20X3, the fair value of the property was estimated at $9 million with costs to sell
estimated at $200,000.
If Candy Co uses the fair value model for investment properties, what gain should be recorded in the
statement of profit or loss for the year ended 31 December 20X3 $ _______,
8000 000?
Question#15:
Which of the following properties owned by Apple would be classified as an investment property?
A. A property that had been leased to a tenant but which is no longer required and is now being held
for resale
B. Land purchased for its investment potential. Planning permission has not been obtained for building
construction of any kind
C. A new office building used as Scoop’s head office.
D. A stately home used for executive training

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Mirchawala’s Hub of Accountancy:

FR: Financial Reporting:

From the desk of Sir Mustafa Ahmed Mirchawala: Page 1

From the desk of Sir Mustafa Ahmed Mirchawala: Page 2

From the desk of Sir Mustafa Ahmed Mirchawala: Page 3

From the desk of Sir Mustafa Ahmed Mirchawala: Page 4

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