(a) IAS 16 Proper ty, Plant and Equipment requires that where there has been a permanent diminution in the value of proper ty, plant and equipment, the carr ying amount should be written down to the recoverable amount. The phrase ‘recoverable amount’ is defined in IAS 16 as ‘the amount which the entity expects to recover from the future use of an asset, including its residual value on disposal’. The issues of how one identifies an impaired asset, the measurement of an asset when impairment has occurred and the recognition of impairment losses were not adequately dealt with by the standard. As a result the International Accounting Standards Committee issued IAS 36 Impairment of Assets in order to address the above issues.

Required:

(i) Describe the circumstances which indicate that an impairment loss relating to an asset may have occurred.

(ii) Explain how IAS 36 deals with the recognition and measurement of the impairment of assets.