ROU assets in the CGU. The UK's Financial Reporting Review Panel intends to review impairment disclosures in 2008 accounts and will give advance notice to a number of listed companies that their accounts will be subject to review. IAS 36 – WHEN TO TEST FOR IMPAIRMENT IAS 36 requires assets within its scope to be tested for impairment when indicators of impairment exist at the end of a reporting period (IAS 36.9). BC171-BC177), Allocating an impairment loss between the assets of a cash‑generating unit (paragraphs 104-107) (paras. So, there is a need to account for impairment losses under IAS 36 requirements. Interest rates are falling in many jurisdictions, but other factors affect discount rates in impairment calculations. IAS 36 also explains how a company should determine fair value less costs to sell. IAS 36: Impairment of Assets. The discount rate should not reflect risks for which future cash flows have been adjusted and should equal the rate of return that investors would require if they were to choose an investment that would generate cash flows equivalent to those expected from the asset. Recoverable amount is the amount that an entity could recover through use or sale of an asset. This is the higher of its fair value less costs of disposal and its value in use . 1) Scope (paras. BC160-BC170), Changes as a result of 2008 revisions to IFRS 3 (Appendix C) (para. In accordance with IAS 36, which of the following would definitely NOT be an indicator of the potential impairment of an asset (or group of assets)? Impairment of assets (IAS 36) Grygorii Kravchenko Impairment of assets • Impairment is determined by comparing the carrying amount of the asset with its recoverable amount. Any impairment loss calculated for a CGU should be allocated to reduce the carrying amount of the asset in the following order: A cash-generating unit has the following net assets: The recoverable amount has been determined and is $135m. Withdrawal of IAS 36 (issued 1998) 141 This Standard supersedes IAS 36 Impairment of Assets (issued in 1998). The principle of IAS 36 Impairment of Assets is that assets should be carried at no more than their recoverable amount. The principles and procedures of IAS 36 that apply to impairment of other non-financial assets apply equally to right-of-use assets. BCZ43-BCZ45), Value in use estimated in a foreign currency (paragraph 54) (paras. BC228A), Transition provisions for Recoverable Amount Disclosures for Non-Financial Assets (paras. The increase will effectively be the reversal of an impairment loss. CACC021 – LECTURE AID: SUGGESTED SOLUTIONS TO CLASS EXAMPLES MODULE 12: CLASS EXAMPLE – If this is the case, then the carrying amount of the asset shall be increased to its recoverable amount. BC116-BC118), Testing indefinite‑lived intangibles for impairment (paras. Impairment considerations for lessees. BC56-BC80), Consideration of future tax cash flows (paras. 138-140N), Withdrawal of IAS 36 (issued 1998) (para. Under IAS 36, the carrying amount of assets in the statement of financial positi… So, there is a need to account for impairment losses under IAS 36 requirements. Contents. Introduction Non-current assets are usually measured in the financial statements at cost or a revalued amount, which is depreciated over the asset’s useful economic life. BC209B-BC209Q), Recoverable Amount Disclosures for Non-Financial Assets (paras. Illustrative Examples – IAS 36 Impairment of Assets . This reduction is the impairment loss, which should be recognised immediately in profit or loss, unless the asset is carried at a re-valued amount. Allocation of goodwill and corporate assetsto different CGUs is covered below. The discount rate to be used in measuring value in use should be a pre-tax rate that reflects current market assessments of the time value of money, and the risks that relate to the asset for which the future cashflows have not yet been adjusted. BCZ21-BCZ22), Recoverable amount based on the higher of net selling price and value in use (paras. Appendix A. BetterRegulation.com © 2020 All rights reserved. 2 IAS 36 Impairment testing: practical issues Introduction IAS 36 Impairment of Assets (the standard) sets out the procedures that entities must apply to ensure that their assets are carried at no more than the amounts expected to be recovered through the use or sale of the assets. INTRODUCTION IAS 36 Impairment of Assets sets out requirements for impairment which cover a range of assets (and groups of assets, termed ‘cash generating units’ or CGUs). This is based on the guidance in IAS 36.78 and the IFRS Interpretations Committee discussion [IAS 36.29, 78. Impairment testing is time intensive and includes: Companies should plan ahead. These are external events, such as a decline in market value, or internal causes, such as physical damage to an asset. Value in use (IAS 36.30-57) can be shortly defined as future cash inflows and outflows from continuing use of the asset and from its ultimate disposal, which are then discounted to reflect time value for money and risk. Using present value techniques to measure value in use. In accordance with IAS 36, which of the following would definitely NOT be an indicator of the potential impairment of an asset (or group of assets)? BCZ14-BCZ20), Recoverable amount based on value in use (paras. This course explains the whole process of impairment recognition of these assets (such as the aim of the impairment test, concept of triggering event, indicators of impairment, concept of recoverable amount, six steps for allocation of impairment for a cash generating unit, impairment reversal, etc.) 355.5 billion yen, including impairment losses of goodwill and intangible assets in the solar, consumer-use lithium-ion batteries and mobile phone businesses. asset. The global body for professional accountants, Can't find your location/region listed? Example 1 Identification of cash-generating units. These include: 1. obsolescence due to new technological changes, 2. decline in performance i.e. Similarly, if there is no reason for the asset's value in use to exceed its fair value less costs to sell, then the latter amount may be used as its recoverable amount. It provides guidance on the use of present value techniques in measuring value in use. Where the recoverable amount of an asset is less than its carrying amount, the carrying amount will be reduced to its recoverable amount. [IAS 36.56] For impairment of an individual asset or portfolio of assets, the discount rate is the rate the entity would pay in a current … Entity A has three CGUs: X, Y and Z. Additionally, there is $10m of goodwill allocated to this group of CG… Solution. This appendix is an integral part of the Standard. View 03. At each reporting date a company should determine whether or not an impairment loss recognised in the previous period may have decreased. IAS 36 Impairment of Assets contains a number of examples of internal and external events which may indicate the impairment of an asset. Therefore, the cashflow forecasts for a VIU test may differ from the cashflows in the approved budgets. Under IAS 36, the carrying amount of assets in the statement of financial positi… SCOPE IAS 36 applies in accounting for impairment of all assets but does not apply to the impairment … There are no exemptions from the disclosure requirements. IAS 36 Impairment of Assets The Board has not undertaken any specific implementation support activities relating to this Standard. However, the increase in the carrying value of the asset can only be up to what the depreciated historical cost would have been if the impairment had not occurred. They should be based upon the most recent financial budgets and forecasts. IAS 36 also outlines the situations in which a company can reverse an impairment loss. 65-108) Reversing an impairment loss (paras. BCZ105-BCZ107), Revalued assets: recognition in the income statement versus directly in equity (paras. A CGU is the smallest identifiable group of assets that can generate cashflows from continuing use, and that are mainly independent of the cashflows from other assets or groups of assets. BCZ178-BCZ181), Reversing impairment losses for assets other than goodwill (paragraphs 110-123) (paras. BCZ113-BC118), Internal transfer pricing (paragraph 70) (paras. IAS 36 applies to a variety of non-financial assets including property, plant and equipment, right-of-use assets, intangible assets and goodwill, investment properties measured at cost and investments in associates and joint ventures 2. If this rule is applied then the impairment loss not allocated to the individual asset will be allocated on a pro rata basis to the other assets of the group. This does not apply to goodwill. BC209A), Changes as a result of IFRS 13 Fair Value Measurement (paras. measure of value of ‘net’ economic benefits embedded in a fixed asset that can be unlocked in event of the sale of the asset CACC021 – LECTURE AID: SUGGESTED SOLUTIONS TO CLASS EXAMPLES MODULE 12: CLASS EXAMPLE – Appendices provide further guidance on specific issues, such as measuring value in use, etc. If carrying value of an asset exceeds its recoverable value then the excess is treated as impairment loss. An asset is said to be impaired when its recoverable amount is … IU 05-16]. Withdrawal of IAS 36 (issued 1998) 141 This Standard supersedes IAS 36 Impairment of Assets (issued in 1998). Please visit our global website instead, Can't find your location listed? Tackling IAS 36 in TWO simple steps: Understanding Impairment of Assets. The asset should also be assessed for impairment in accordance with IAS 36. If an asset’s recoverable amount is less than its carrying value, then the asset is impaired and IAS 36 requires that an Impairment accounting - the basics of IAS 36 Impairment of assets IAS 36, Impairment applies to all tangible, intangible and financial assets except inventories (IAS 2), assets arising from construction assets (IAS 11), deferred taxation assets (IAS 12), assets arising from employee benefits (IAS 19) and financial assets within the scope of IFRS 9 (IAS 39). Where this occurs, the asset is described as impaired and IAS 36 requires the entity to recognise an impairment loss. M has manufacturing plants in … Solution. BCZ31-BCZ39), Net realisable value (paras. 18-57) Recognising and measuring an impairment loss (paras. BCZ230-BCZ233). The IASB has issued educational material that contains examples of how companies might consider climate related matters and risks in their financial reporting under IFRS. The IASB has issued educational material that contains examples of how companies might consider climate related matters and risks in their financial reporting under IFRS. BCZ23-BCZ27), Other refinements to the measurement of recoverable amount (paras. In practice, a single estimate of cash flows derived from budgets is used most often, but IAS 36 allows also the use of the expected value approach. 6) Identifying an asset that may be impaired (paras. Even if there is no indication of any impairment, certain assets should be tested for impairment, for example, an intangible asset that has an indefinite useful life. Illustrative Examples – IAS 36 Impairment of Assets . BCZ41-BCZ42), Future cash flows from internally generated goodwill and synergy with other assets (paras. Trigger for impairment testing. Impairment review is required each year to assess whether there are indications that impairment might have occurred. BC205-BC209), Changes as a result of Improvements to IFRSs (2008) (para. BC210-BC228C), Transitional impairment test for goodwill (paras. 109-125), Transition provisions and effective date (paras. BCZ28-BCZ30), Net selling price (paragraphs 25-29) (paras. However, the carrying amount of an asset after allocation of the impairment loss cannot decrease below its recoverable amount (fair value less cost of disposal) or zero. the identification of impairment indicators; testing the reasonableness of the assumptions; and. BC227-BC228), Transitional provision for Improvements to IFRSs (2009) (para. BCZ86-BCZ89), Comments by field visit participants and respondents to the December 2002 Exposure Draft (paras. 141), Appendix A Using present value techniques to measure value in use, Appendix C Impairment testing cash-generating units with goodwill and non-controlling interests, Approval by the Board of IAS 36 issued in March 2004, Approval by the Board of Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36) issued in May 2013, Measuring recoverable amount (paragraphs 18-57) (paras BCZ9-BCZ30), Recoverable amount based on the sum of undiscounted cash flows (paras. By NG ENG JUAN. An intangible asset with an indefinite useful life should not be amortised. If carrying value of an asset exceeds its recoverable value then the excess is treated as impairment loss. BCZ40-BC80), Expected value approach (paras. The financial crisis continues, cash‑generating units containing goodwill or indefinite‑lived intangibles impairment... 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