Case $6$: IAS $36-$ Impairment of Assets

Scenario:

FiberTech Ltd$.$ owns a manufacturing plant located in City X$.$

Due to a downturn in the telecommunications industry, the

demand for FiberTech's products has decreased. As of December

$31,2024,$ the plant's carrying amount is $$25$ million. An

independent valuation was conducted, revealing the following:

Fair Value Less Costs to Sell: $$18$ million

Value in Use: $$17$ million

In addition to the manufacturing plant, FiberTech holds a patent

for a unique fiber$-$optic technology. The carrying amount of the

patent is $$8$ million. Due to the rapid technological

advancements in the market, the patent's fair value is now $$5$

million, while its value in use is $$6\mathrm{.}5$ million.

FiberTech's management suspects that both the plant and the

patent may be impaired and is unsure how to proceed under IAS

$36.$

Required:

a$)$ Identify the indicators that suggest an asset may be

impaired under IAS $36.$ What specific factors related to

FiberTech have triggered the need for an impairment test

for the manufacturing plant and patent? $(4$ marks$)$

b$)$ Define the recoverable amount under IAS $36$ and

determine whether the fair value less costs to sell or the

value in use should be used as the recoverable amount for

each asset. $(4$ marks$)$

c$)$ Calculate the impairment losses for both the manufacturing

plant and the patent. Provide the journal entries to record

these impairment losses, if applicable. $(3$ marks$)$

d$)$ Explain how the impairment losses would affect the

financial statements of FiberTech Ltd$.$ and how they should

be disclosed. $(4$ marks$)$