Question

A loss on impairment of an intangible asset under IFRS is the asset’s:

(a) carrying amount less the expected future net cash flows.

(b) carrying amount less its recoverable amount.

(c) recoverable amount less the expected future net cash flows.

(d) book value less its fair value

Short answer

Carrying amount less its recoverable amount.

Step-by-step solution

Meaning of Intangible asset

Intangible assets are assets that do not have a physical form. Organizations that have spent significant money to establish brands may find that the value of their intangible assets much outweighs the worth of their physical assets.

Explaining the correct option

When the carrying value of a resource exceeds its recoverable value, an impairment loss happens. Between the value in utilize and the reasonable value less expensive, the recoverable amount is bigger. The value of the expected cash flows over a given period is the value in utilize. The amount expected to be received by selling the resource less the cost of doing so is the reasonable value, which is decreased by the fetched included in making the sale.

So, option (b) carrying amount less its recoverable amount is the right option.

Explaining the incorrect option

Option a) When an asset's carrying value or the value of a cash-generating unit exceeds its recoverable value, an impairment loss results. The higher an asset's fair value,the fewer disposal costs; its value in use is the amount that can be recovered from it or its cash-generating unit.

Option c) When an asset's recoverable sum falls short of its carrying sum, it will be lowered to the asset's recoverable sum. This decrease is the impairment loss, which ought to be perceived immediately in profit or loss unless the resource is carried at a revalued sum.

Option d) Carrying cost minus recoverable amount equals impairment loss. This is the impairment that needs to be acknowledged.