Mindanao State University

College of Business Administration and Accountancy

DEPARTMENT OF ACCOUNTANCY
Marawi City

CHAPTER 42
SMEs – IMPAIRMENT OF ASSETS

QUESTION 42-14 Multiple Choice (IFRS)

1. Which of the following statements best describes the term “impairment loss”?

a. The removal of an asset from the statement of financial position.

b. The amount by which the carrying amount of an asset exceeds the recoverable amount.
c. The systematic allocation of a n asset’s cost less residual value over the useful life.
d. The amount by which the recoverable amount of an asset exceeds the carrying amount.

2. What is the recoverable amount of an asset?

a. Fair value less cost of disposal
b. Value in use
c. Fair value less cost of disposal or value in use, whichever is higher
d. Fair value less cost of disposal or value in use, whichever is lower

3. If the fair value less cost of disposal cannot be determined

a. The asset is not impaired.

b. The recoverable amount is the value in use.
c. The net realizable value is used.
d. The carrying amount of the asset remains the same.

4. If the asset is to be disposed of

a. The recoverable amount is the fair value less cost of disposal.

b. The recoverable amount is the value in use.
c. The asset is not impaired.
d. The recoverable amount is the carrying amount.

5. What is the best evidence of fair value?

a. Quoted price of an identical asset in an active market

b. Quoted price of a similar asset in an active market
c. Quoted price of an identical asset in an inactive market
d. Quoted price of a similar asset in an inactive market

6. Which of the following best describes value in use?

a. The present value of estimated future cash flows expected to arise from the continuing use of an asset and
from the ultimate disposal.
 Mindanao State University
College of Business Administration and Accountancy
DEPARTMENT OF ACCOUNTANCY
Marawi City

b. The amount of cash or cash equivalents that could currently be obtained by selling an asset in an orderly
disposal.
c. The amount which an entity expects to obtain for an asset at the end of the useful life.
d. The amount at which an asset could be exchanged between knowledgeable and willing parties in arm’s
length transaction.

7. Which of the following is NOT relevant in determining value in use?

a. The expected future cash flows from the asset

b. The carrying amount of the asset
c. Expectation about possible variation in the amount and timing of future cash flows
d. The time value of money

8. The estimates of future cash flows in calculating value in use include al;l of the following, except

a. Cash inflows from the continuing use of the asset.

b. Cash outflows incurred to generate the cash inflows form the continuing use of the asset
c. Net cash flows from the disposal of the asset at the end of the useful life.
d. Cash outflows for income tax

9. What is the allocation of an impairment loss recognized for a cash generating unit?

a. Across the assets of the unit based on carrying amount.

b. Across the assets of the unit based on fair value.
c. First, to any goodwill, and the balance of the other assets prorate based on fair value.
d. First, to any goodwill, and the balance of the other assets prorate based on carrying amount.

10. It is the smallest identifiable group of asserts that generate cash inflows from continuing use that are largely
independent of the cash inflows form other assets or group of assets.

a. Cash generating unit

b. Goodwill
c. Corporate asset
d. The entity as a whole

ANSWER 42-14

1. B 6. A
2. C 7. B
3. B 8. D
4. A 9. D
5. A 10. A