ACCA Applied Skills · Financial Reporting · Impairment of assets
Which of the following is an external indicator of impairment that IAS 36 requires an entity to consider at the end of the reporting period?
Market capitalisation falling below the carrying amount of net assets is a listed external indicator of impairment in IAS 36. The other events, such as a depreciation method change, higher dividends or a new director, do not suggest the recoverable amount has fallen.
- AThe entity's market capitalisation is below the carrying amount of its net assetsCorrect
- BThe entity has recently changed its depreciation method to straight line
- CThe entity has increased its dividend for the year
- DThe entity has appointed a new finance director
Explanation
IAS 36 lists net assets carrying amount exceeding market capitalisation as an external indicator. A change in depreciation method, a dividend increase and a staff appointment are not listed indicators of impairment. The depreciation change is an accounting estimate change and says nothing about recoverable amount.
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