if there has been a permanent reduction in the value of PPE, the carrying amount should be
Question:
if there has been a permanent reduction in the value of PPE, the carrying amount should be adjusted for the decrease in value to reflect the ‘recoverable amount.’
The phrase ‘recoverable amount’ is outlined in the IAS 16 as ‘the amount which the entity expects to cover from the future use of the asset, including its residual value of disposal.’ The standard provides little guidance on how to deal with: the identification of an impaired asset, how to measure the impairment value, and how to recognise an impairment loss.
As a result of this, IAS 36 Impairment of Assets was issued to help address the deficiencies in IAS 16 associated with impairment.
Required
Explain the assumptions of International Accounting Standards (IAS) 36 Impairment of Assets and the circumstances within which an impairment loss, in relation to PPE, has occurred.