Chapter 11 HKAS 36 Impairment of Assets

Answer 1 (a)

On 1st October 20X8 the land and buildings were valued by XYZ, Chartered urveyors, on an o!en "ar#et e$isting use basis%

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(he closing carrying value "ust not e$ceed the i"!aired value o) *100"+ there)ore the accu"ulated de!reciation "ust be )i$ed at *200"% (his in turn gives the i"!air"ent charge as a balancing )igure o) *1,0"% (he new carrying value o) *100" will be de!reciated over the re"aining 8 year li)e o) the license% (b) Usefulness of the disclosures
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(he disclosures give the reader "ore in)or"ation about the nature and value o) the non'current assets% -irstly, there is the s!lit between tangible assets (!ro!erty, !lant and e.ui!"ent) and intangible assets% /enders are less willing to use intangibles as security )or loans than tangibles, and in the event o) a winding u! intangibles are o)ten worthless without the business to su!!ort the"% 0ithin !ro!erty, !lant and e.ui!"ent there is the s!lit between land and buildings and the rest% /and and buildings are o)ten seen as the best source o) security by lenders% /and and buildings can go u! in value as well as down, and so the note indicates the e))ect o) revaluations during the year% (he revaluation reserve note elsewhere in the )inancial state"ents will show the total revaluation co"!ared with original cost% 1ecause valuations are sub2ective the identity and .uali)ications o) the valuer are disclosed% (he rates o) de!reciation indicate how !rudent (or otherwise) the de!reciation !olicies are, and whether the re!orted !ro)its are )airly stated% (he ratio between carrying value and cost gives a rough idea o) the age o) the assets, and o) how soon they will need re!lacing% (he disclosure o) the i"!air"ent loss )lags a bad invest"ent+ the shareholders will want "ore in)or"ation about this at their annual general "eeting%

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