Testbank

to accompany

Applying International
Accounting Standards
by
Alfredson, Leo, Picker, Pacter & Radford
Prepared by
Victoria Wise

John Wiley & Sons Australia, Ltd 2005

-2-

CHAPTER 11 Impairment of assets

Question 1
Under IAS 36 Impairment of Assets, the following assets are subject to impairment testing:
Inventory
Assets arising from construction contracts
Assets arising from employee benefits
Property, plant and equipment
A
B
C
D

I
Yes
Yes
No
No

II
III IV
Yes No No
Yes No No
Yes No Yes
Yes Yes No

I;
II;
III;
IV.

Question 2
An impairment loss occurs when:
A
B
C
D

the recoverable amount of an asset exceeds the carrying amount;

the carrying amount of an asset exceeds the recoverable amount;
the asset has a zero residual value;
the recoverable amount of an asset exceeds its initial cost.

Question 3
Nguyen Limited estimated that it would receive future cash flows from the use of Equipment:
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:
A
B
C
D

$80 000;
$73 600;
$68 000;
$63 500.

Applying International Accounting Standards Chapter 11

-3Question 4
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:
A
B
C
D

$60 000;
$45 000;
$35 000;
$10 000.

Question 5
At reporting date, the carrying amount of a cash-generating unit was considered to be have been
impaired by $800. The unit included the following assets: Land $4 000; Plant $3 000; Goodwill
$1,000. The carrying amount of Goodwill after the impairment loss is allocated, is:
A
B
C
D

$200;
$900;
$1 000;
$0.

Question 6
Xerri Limited acquired 70% of the shares of Ziems Limited for $35 000 on 1 July 20X5. At this
date the identifiable net assets of Ziems Limited have a fair value of $40 000. How much is the
net fair value acquired by Xerri Limited?
A
B
C
D

$50 000;
$40 000;
$35 000;
$28 000.

Question 7
Girgin Limited acquired 70% of the shares of Eti Limited for $70 000. At acquisition date the
identifiable net assets of Eti Limited had a fair value of $90 000. What is the amount of the
grossed-up goodwill relating to the acquisition of Eti Limited?
A
B
C

$10 000
$7 000;
$3 000;

Applying International Accounting Standards Chapter 11

-4D

$9 000.

Question 8
A part of a cash-generating unit which had recognised goodwill, was sold for $20 000. The
recoverable amount of the remaining part of the unit is $60 000. How much of the goodwill is
included in the carrying amount of the operation that is disposed of?
A
B
C
D

33%;
30%;
50%;
25%.

Question 9
When assessing the recoverable of assets that have previously been subject to an impairment
loss, all of the following indicators assist in providing external evidence that an impairment loss
has reversed:
A
B
C
D

the assets market value has decreased significantly during the period;
significant changes with an adverse effect on the entity have taken place;
market interest rates have decreased during the period;
internal reporting sources indicate that the economic performance of the asset will
not be as good as expected.

Question 10
When an impairment loss in relation to a cash-generating unit is reversed, it is allocated on a pro
rate basis to the assets of the unit, except for:
A
B
C
D

land;
goodwill;
plant;
equipment.

Question 11
During 20X4 Sacco Limited, estimated that the carrying amount of goodwill was impaired and
wrote it down by $50 000. In a subsequent year, the company reassessed goodwill was decided
that the old acquired goodwill still existed. The appropriate accounting treatment in the
subsequent period is:

Applying International Accounting Standards Chapter 11

-5A
B
C
D

reverse the previous goodwill impairment loss;

recognise the revalued amount of goodwill by an adjustment against the asset
revaluation surplus account;
ignore the reversal as it is prohibited by IAS 36 Impairment of Assets;
increase goodwill by an adjustment to retained earnings.

Question 12
In relation to the impairment of assets, IAS 36 Impairment of Assets, requires the following
disclosures for each class of assets:
I.
II.
III.
IV.

The line of the income statement in which impairment losses are included.
The amount of reversals of impairment losses during the period.
The amount of impairment losses recognised directly in equity.
The beginning and ending balances of any provision for impairment account.
A
B
C
D

I, II, III and IV;

I, II and III only;
II and IV only.
IV only.

Applying International Accounting Standards Chapter 11

-6-

ANSWERS
1

10

11

12

Applying International Accounting Standards Chapter 11