Question

At December 31, 2010, a company has a piece of equipment it acquired on January 1, 2007, with an initial scrap value of $0, which has significantly decreased in market value due to technological innovations in the industry in which the company operates. The equipment’s 10-year service life has a net carrying value of $60,000 ($100,000 cost less $40,000 of accumulated depreciation). The expected future undiscounted cash flows from the use of this equipment are $59,000. Additionally, the company expects to scrap the equipment in six years at the end of its service life, for $2,000.

– Is an impairment loss calculation required using IFRS?

Answer 1

Under IFRS, if the carrying value of an asset is higher than the fair value of
that particular asset, we need to calculate the impairment loss on that
asset to represent it at it's realizable value in the books.
Fair value of the asset is determined as the total expected undiscounted
future cash flow from the use of that asset.
Original cost of the equipment	$100,000
The carrying value of equipment at December 31,2010	$60,000
Computation revised carrying value and accumulated depreciation
due to change in the estimate of useful life of the equipment
Original cost of the equipment	$100,000
Revised useful life of the equipment (in years)	6
Scrap Value	$2,000
Depreciable value	$98,000
Annual depreciation	$16,333
Accumulated depreciation as on December 31,2010	$65,332
Carrying value of the equipment as per revised useful life	$34,668
Carrying value of the equipment as per revised useful life	$34,668
Fair value on the basis of future undiscounted cash flows	$59,000
Since the carrying value of the asset is less than the fair value, there
is no need to calculate the impairment loss under IFRS