IFRS for SMEs) IFRS for SMEs Property and Impairment — Questions and Answers
Question 1: How should property, plant and equipment be initially measured under IFRS for SMEs?
- At cost, including purchase price, directly attributable costs, and estimated dismantling costs (Correct answer)
- At fair value determined by an independent appraiser
- At the lower of cost and net realizable value
- At replacement cost
Correct answer: At cost, including purchase price, directly attributable costs, and estimated dismantling costs
Section 17 requires PPE to be initially measured at cost, which includes the purchase price, directly attributable costs of bringing the asset to its working condition, and estimated costs of dismantling and site restoration.
Question 2: What subsequent measurement model is available for PPE under IFRS for SMEs?
- Cost model only (cost less accumulated depreciation and impairment) (Correct answer)
- Revaluation model only
- Either cost or revaluation model
- Fair value through profit or loss
Correct answer: Cost model only (cost less accumulated depreciation and impairment)
Unlike full IFRS which allows both cost and revaluation models, IFRS for SMEs only permits the cost model for PPE: cost less accumulated depreciation less accumulated impairment losses.
Question 3: How should investment property be measured under IFRS for SMEs?
- At fair value through profit or loss if fair value can be measured without undue cost; otherwise at cost model (Correct answer)
- Always at historical cost
- Always at fair value regardless of cost to determine
- At the lower of cost and fair value
Correct answer: At fair value through profit or loss if fair value can be measured without undue cost; otherwise at cost model
Section 16 requires investment property whose fair value can be measured reliably without undue cost or effort to be measured at fair value through profit or loss; otherwise, the cost-depreciation-impairment model applies.
Question 4: When should an entity recognize an impairment loss under IFRS for SMEs?
- When the carrying amount of an asset exceeds its recoverable amount (Correct answer)
- Only when the asset is physically damaged
- At each year-end regardless of indicators
- Only when the asset is sold at a loss
Correct answer: When the carrying amount of an asset exceeds its recoverable amount
Section 27 requires impairment testing when indicators suggest the carrying amount may not be recoverable, and an impairment loss is recognized when the carrying amount exceeds the higher of fair value less costs to sell and value in use.
Question 5: How is the recoverable amount of an asset determined under IFRS for SMEs?
- The higher of fair value less costs to sell and value in use (Correct answer)
- The lower of cost and net realizable value
- The average of book value and market value
- The original purchase price less depreciation
Correct answer: The higher of fair value less costs to sell and value in use
Recoverable amount is the higher of an asset's fair value less costs to sell (what you could get by selling it) and its value in use (the present value of future cash flows from continuing to use it).
Question 6: Can impairment losses be reversed under IFRS for SMEs?
- Yes, for assets other than goodwill, if the reasons for impairment no longer exist (Correct answer)
- No, impairment losses are never reversible
- Only for inventory items
- Only with approval from the tax authority
Correct answer: Yes, for assets other than goodwill, if the reasons for impairment no longer exist
IFRS for SMEs allows reversal of impairment losses for assets other than goodwill when the circumstances that caused the impairment have changed, but the reversal cannot exceed the carrying amount that would have existed without impairment.
IFRS for SMEs) IFRS for SMEs Property and Impairment
How should property, plant and equipment be initially measured under IFRS for SMEs?