(a) IAS 16 Property, Plant and Equipment requires that where there has been a permanent diminution in the value of property, plant and equipment, the carrying amount should be written down to the recoverable amount. The phrase ‘recoverable amount’ is defined in IAS 16 as ‘the amount which the entity expects to recover from the future use of an asset, including its residual value on disposal’. The issues of how one identifies an impaired asset, the measurement of an asset when impairment has occurred and the recognition of impairment losses were not adequately dealt with by the standard. As a result the International Accounting Standards Committee issued IAS 36 Impairment of Assets in order to address the above issues.

Required:
(i) Describe the circumstances which indicate that an impairment loss relating to an asset may have occurred.
(ii) Explain how IAS 36 deals with the recognition and measurement of the impairment of assets.

(b) AB, a public limited company, has decided to comply with IAS 36 Impairment of Assets. The following information is relevant to the impairment review:
(i) Certain items of machinery appeared to have suffered a permanent diminution in value. The inventor y produced by the machines was being sold below its cost and this occurrence had affected the value of the productive machinery. The carrying value at historical cost of these machines is $290,000 and their net selling price is estimated at $120,000. The anticipated net cash inflows from the machines are now $100,000 per annum for the next three years. A market discount rate of 10% per annum is to be used in any present value computations.
(ii) AB acquired a car taxi business on 1 January 20X1 for $230,000. The values of the assets of the business at that date based on net selling prices were as follows:
$000
Vehicles (12 vehicles) ...... 120
Intangible assets (taxi license) .... 30
Trade receivables ......... 10
Cash ............. 50
Trade payables ........ (20)
190
On 1 February 20X1, the taxi company had three of its vehicles stolen. The net selling value of these vehicles was $30,000 and because of non-disclosure of certain risks to the insurance company, the vehicles were uninsured. As a result of this event, AB wishes to recognize an impairment loss of $45,000 (inclusive of the loss of the stolen vehicles) due to the decline in the value in use of the cash generating unit that is the taxi business. On 1 March 20X1 a rival taxi company commenced business in the same area. It is anticipated that the business revenue of AB will be reduced by 25% leading to a decline in the present value in use of the business, which is calculated at $150,000. The net selling value of the taxi license has fallen to $25,000 as a result of the rival taxi operator. The net selling values of the other assets have remained the same as at 1 January 20X1 throughout the period.

Required:
Describe how AB should treat the above impairments of assets in its financial statements.