IAS 36 - DIPIFR Exam tips and guide

 IAS 36 – Impairment of Assets: Complete Exam Mastery Guide

DipIFR Strategic Study Resource for Eduyush Students

 Quick Reference: Exam Success Formula

THE GOLDEN RULE: Recoverable Amount = HIGHER of VIU and FVLCOD
THE ALLOCATION RULE: Goodwill → Intangibles → PPE (in that order)
THE REVERSAL RULE: All assets EXCEPT goodwill can be reversed
THE DISCLOSURE RULE: Always include 3-4 standard disclosure points for easy marks

Examiner's Mind Map - What They're Really Testing

Core Testing Objectives:

1. Can you identify the higher value? (Most common mistake: using lower)
2. Do you understand CGU mechanics? (Allocation sequence matters)
3. Can you apply reversal rules correctly? (Goodwill trap)
4. Do you integrate with other standards? (IAS 16, IAS 12, IFRS 3)

Examiner's Favorite Tricks:

1. Give you both VIU and FVLCOD calculations, then students pick the lower ❌
2. Show goodwill in a CGU, students forget to impair goodwill first ❌
3. Present a reversal scenario with goodwill included ❌
4. Complex cash flow projections but wrong discount rate used ❌

Examiner-Impressing Keywords & Phrases

Master These Exact Terms - They Unlock Marks!

🔹 Identifying Impairment

1. "External and internal indicators of impairment"
2. "Significant decline in market value"
3. "Obsolescence or physical damage"
4. "Adverse changes in economic, legal or technological environment"
5. "Carrying amount exceeds recoverable amount"

🔹 Recoverable Amount

1. "Recoverable amount is the higher of fair value less costs of disposal and value in use"
2. "Value in use = present value of future cash flows"
3. "Fair value less costs of disposal (FVLCD)"
4. "Best evidence is a binding sales agreement in an arm's length transaction"
5. "Pre-tax discount rate that reflects current market assessments"

🔹 Impairment Loss

1. "Impairment loss is recognized when carrying amount exceeds recoverable amount"
2. "Recognized in profit or loss, unless asset carried at revalued amount (IAS 16)"
3. "First allocated to goodwill, then pro-rata to CGU assets"
4. "Cannot reduce an asset below its fair value less costs of disposal or value in use"

🔹 Reversal of Impairment

1. "Reversal permitted if estimates change, except for goodwill"
2. "Reversal limited to the carrying amount had no impairment been recognized"
3. "Reversal recognized in profit or loss (unless revalued asset)"
4. "Goodwill impairment shall not be reversed in a subsequent period"

🔹 CGUs (Cash-Generating Units)

1. "Smallest identifiable group of assets generating largely independent cash inflows"
2. "Goodwill tested for impairment at CGU level"
3. "Impairment allocated first to goodwill, then pro-rata to other assets"
4. "Corporate assets allocated on reasonable and consistent basis"

Power Phrases for Maximum Impact:

Opening Lines:

1. "In accordance with IAS 36, Impairment of Assets..."
2. "The recoverable amount is defined as the higher of..."
3. "An impairment loss shall be recognized when..."

For Calculations:

1. "The value in use calculation requires discounting expected future cash flows..."
2. "Fair value less costs of disposal represents the amount obtainable from sale..."
3. "The impairment loss of $X is allocated as follows..."

For Theoretical Parts:

1. "IAS 36 requires annual impairment testing for goodwill..."
2. "External indicators include significant decline in market value..."
3. "The standard prohibits reversal of goodwill impairment losses..."

Pro Tips for Using These Keywords:

1. Frame Every Answer: Always start with "In accordance with IAS 36..." or "IAS 36 requires..."
2. Use Exact Definitions: Don't paraphrase - use the standard's exact terminology
3. Sound Professional: Replace casual language:
   • ❌ "The company should check for impairment"
   • ✅ "The entity shall assess whether there are indicators of impairment"
4. Quote the Rule: Even in computational questions, state the underlying principle
5. Use Technical Terms: "Carrying amount", not "book value"; "Recognized", not "recorded"

Examiner Psychology: Using standard IFRS terminology signals that you understand the conceptual framework, not just the mechanics. This can be the difference between a pass and a strong pass!

The IAS 36 Exam Decoder

Question Type Recognition:

🔹 Type A: Pure Impairment Test (8-10 marks) Triggers: "Calculate impairment loss", "Recoverable amount", "Carrying amount exceeds" Strategy: Follow 6-step template religiously

🔹 Type B: Goodwill CGU Scenario (10-15 marks) Triggers: "Cash generating unit", "Goodwill allocated", "Business combination" Strategy: Allocate impairment to goodwill first, then pro-rata

🔹 Type C: Reversal Testing (6-8 marks) Triggers: "Conditions improved", "Indicators no longer present", "Reverse impairment" Strategy: Apply ceiling rule, exclude goodwill

🔹 Type D: Integration Question (12-20 marks) Triggers: Multiple standards referenced, "effect on tax", "revaluation then impairment" Strategy: Break into components, tackle IAS 36 portion methodically

The Foolproof Calculation Template

The 6-Step IAS 36 Method (Use this structure in every question)

Step 1: IDENTIFY INDICATORS
- List internal/external indicators present
- Conclude: "Impairment test required" [1 mark]

Step 2: DETERMINE RECOVERABLE AMOUNT
Fair Value less Costs of Disposal (FVLCOD):    $X
Value in Use (VIU):                           $X
Recoverable Amount = HIGHER of above:          $X [2-3 marks]

Step 3: COMPARE WITH CARRYING AMOUNT
Carrying Amount:                              $X
Recoverable Amount:                           $X
Impairment Loss = CA - RA:                    $X [2 marks]

Step 4: ALLOCATION (if CGU involved)
Goodwill (allocated first):                   $X
Remaining balance allocated pro-rata:
- Intangibles ($X/$Y × $Z):                  $X  
- PPE ($X/$Y × $Z):                          $X [3-4 marks]

Step 5: JOURNAL ENTRIES
Dr Impairment Loss (P&L)                      $X
    Cr Accumulated Impairment - Goodwill          $X
    Cr Accumulated Impairment - PPE               $X [2 marks]

Step 6: DISCLOSURES
[List 3-4 standard disclosure points] [2-3 marks]

Value in Use Calculation Sub-Template:

Year 1 Cash Flow:                             $X
Year 2 Cash Flow:                             $X  
Year 3 Cash Flow:                             $X
Terminal Value (Year 3 × growth ÷ (r-g)):    $X

PV of Year 1 ($X ÷ 1.12¹):                   $X
PV of Year 2 ($X ÷ 1.12²):                   $X
PV of Year 3 + Terminal ($X ÷ 1.12³):        $X
Value in Use:                                 $X

Pitfall Avoidance System

The Big 5 Mistakes (Fix These = Instant Mark Improvement)

Examiner's Exact Words to Memorize:

"The recoverable amount is the higher of fair value less costs of disposal and value in use"
"Impairment losses on goodwill cannot be reversed in future periods"
"Within a CGU, impairment is allocated first to goodwill, then pro-rata"
"The discount rate used in VIU calculations must be pre-tax"

Integration Mastery

IAS 36 + IAS 16 (PPE Revaluation then Impairment)

Sequence: Revalue → Test for impairment → Apply impairment to revalued amount
Key Point: Impairment reduces revaluation reserve first, then P&L

IAS 36 + IAS 12 (Deferred Tax Effects)

Impairment creates temporary difference:
- Carrying amount (after impairment): Lower
- Tax base (unchanged): Higher  
- Creates Deferred Tax Asset (if deductible)

IAS 36 + IFRS 3 (Goodwill in Business Combinations)

Goodwill allocation: Must be allocated to CGUs
Testing frequency: At least annually + when indicators present
NCI impact: Consider full goodwill vs partial goodwill methods

Question-Specific Attack Strategies

For Numerical Questions (60% of marks):

1. Set up your template first - don't start calculating immediately
2. Show every step - method marks are generous
3. Use clear headings - "Recoverable Amount Calculation", "Impairment Allocation"
4. Double-check the higher/lower rule - circle your final recoverable amount

For Theoretical Questions (40% of marks):

1. Structure your answer - Introduction, main points, conclusion
2. Use examiner's language - quote the key phrases exactly
3. Give practical examples - "For instance, if market value drops significantly..."
4. Cover disclosure requirements - easy marks often ignored

Pre-Exam Quick Check

✅ 24 Hours Before Exam - Tick Off Each Item:

Core Concepts:

• [ ] Can define recoverable amount in examiner's exact words
• [ ] Know the allocation sequence for CGU impairment
• [ ] Understand reversal rules (and goodwill exception)
• [ ] Can calculate VIU using pre-tax discount rate

Integration Areas:

• [ ] IAS 16 + IAS 36 interaction (revaluation then impairment)
• [ ] IAS 12 + IAS 36 (deferred tax on impairment)
• [ ] IFRS 3 + IAS 36 (goodwill allocation to CGUs)

Exam Technique:

• [ ] Memorized the 6-step template
• [ ] Know 4-5 standard disclosure points to "dump"
• [ ] Can spot question types within 30 seconds
• [ ] Practiced allocation calculations until automatic

Last-Minute Power Tips

The 3-Minute Question Scan Method:

1. Identify question type (Pure impairment/CGU/Reversal/Integration)
2. Spot the integration (Which other standards are involved?)
3. Plan your attack (Which template parts apply?)

Time Allocation Strategy:

• Step 1-2 (Indicators/Recoverable): 30% of time
• Step 3-4 (Compare/Allocate): 40% of time
• Step 5-6 (Entries/Disclosures): 30% of time

Mark Maximization Hacks:

• Method marks: Show workings even if numbers are wrong
• Theory marks: State rules even in computational questions
• Easy marks: Never skip disclosure requirements
• Safety net: If stuck, write the definition of recoverable amount for 2 marks

Suggested Focus Areas:

1. Master goodwill CGU scenarios - appears every sitting
2. Practice reversal calculations - due for comeback
3. Rehearse integration questions - highest mark questions
4. Memorize disclosure points - guaranteed easy marks

🎯 Remember: IAS 36 is Your Friend!

Unlike some standards, IAS 36 has predictable patterns. Master the template, avoid the big 5 mistakes, and you'll consistently score 70%+ on these questions. The examiners want to see logical, structured thinking more than perfect numbers.

Your mantra: "Higher, Goodwill first, Never reverse goodwill, Always disclose"

Good luck! With this systematic approach, IAS 36 will become one of your strongest areas. 🚀