Q1 When should companies undertake an impairment test?
An impairment test is to judge whether there exists impairment of assets within the business based on external and internal information and it required under the accounting standards and framework. In addition, an impairment test is undertaken when arising some indications that an asset may be impaired. The regulations for impairment tests have been explained by IAS36 and AASB136.

Indication testing
An entity must estimate at the end of the annual reporting period whether there is any indication of impairments of assets have been identified. If any indication exists, the entity shall assess the recoverable value of the asset (IAS36 paragraph 9). Some signals are identified in AASB 136 paragraph 12 may be resulted in the value of assets impaired. Thereby the company should undertake an impairment test.

External sources of information can indicate the impairment of assets in the business. A market price of asset has decreased significantly that more than expected to normal. And some adverse changes in the technology, market, economic and business climate have taken place during this period. Furthermore, it is possible to affect the discount rate of assets and the value in use with the unstable exchange rate effect on the market interest rates.

Other indications based on internal sources of information are also the signal of the impairment test. Assets have physical damage during this period. In addition, the company decides to alter or discontinue the operation of assets before the expected date. And internal reporting of an entity has a large difference with the previously expected.

Other testing
Certainly, an impairment test is required to undertake irrespective of whether any indicators of assets have been impaired.

Under AASB136 paragraph 9-10, an impairment test is required to test an indefinite useful life intangible asset or an unavailable for use of intangible asset based on its carrying amount and recoverable amount. This impairment test may be performed at any time during an annual period, especially performed at the same time each year. And different intangible assets have different times to undertake an impairment test. However, if an intangible asset was initially recognised during the current annual period, this intangible asset may be tested for impairment before the end of the current annual period.

AASB 136 in the paragraph states that testing goodwill acquires in a business combination from the acquisition date. The impairment test for a cash-generating unit to which goodwill has been allocated may be performed at any time during an annual period, provided the test is carried out at the same time every year. Different cash-generating units may have different times to be tested for impairment. However, if some or all of the goodwill allocated to a cash-generating unit was acquired in a business combination during the current annual period, this unit may be tested for impairment before the end of the current annual period.

Q2 In the case of Newcrest Mining Ltd (NCM), was the cause of the impairment operational, financial or both? Explain
NCM Ltd is undertaking a review of book values for all assets with operating cost assumption and exchange rate assumption. The assessment is not complete, but the Board considers it likely appears an impairment loss of assets in the range of $1.5 billion to $2.5 billion after tax (Ker 2014). The impairment comes from both operational and financial causes.

Operational
Most of the impairments are related to operational troubles of Lihir Project in Papua New Guinea. The company noticed that the current cost of gold mining is higher than the original assumptions. The operational expenditure of mining can be capitalized and be recognised as a component of mining assets at the site. So the increase of operating cost will lead to an increase in book value of the asset. This enables the carrying