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Ind-AS 36: Impairment of Assets (Out of Scope (Inventories Ind-AS 2,…
Ind-AS 36: Impairment of Assets
Meaning of Impairment of Assets
Carrying Amt. - Recoverable Amt.
CA = Book Value
RA = Net Fair Value or Value in use,
whichever is
higher
Net FV = FV - Cost of Disposal
Value in Use = PV of expected cash inflows including salvage value
Reversal of I.Loss
Cannot exceed original CA.
Amt. exceeding original CA will go to Rev. Res.
Out of Scope
Inventories
Ind-AS 2
Construction Contracts
Ind-AS 115
Investments held for Employee Benefits
Ind-AS 19
Deferred Tax Assets
Ind-AS 12
Biological Assets
Ind-AS 41
Financial Instruments
Ind-AS 109
NCA held for Sale
Ind-AS 105
Insurance Contracts
Ind-AS 104
Indications
External
Faster rate of decline in value of assets than expected
Market interest rate increases
Restrictions on use of asset causing its value to decline
Book value of asset exceeds market cap.
Internal
Physical damage to asset
Manner of using asset is not proper
Decline of expected cash inflows from asset
Exceptions
G/W acquired in business combination
Intangible assets that are not in use
Intangible assets without definite life
Cash Flows
Range of cash flows = Calculate average cash flow
Apply probability factor if cash flows are not certain
Foreign cash flows = Convert PV at exchange rate on impairment date
Entity must not estimate cash flows beyond 5 years
Include value of further years in
salvage value at the end of 5th year
practical point only
Discounting at cost of capital (
WACC
).
Use incremental borrowing rate if above is unavailable
Fair Value
Recent transactions in market
Active market for second hand assets
Meaning of CGU
Inter-dependent group of assets
smallest group
Impairment of CGU
Calculate total CA of all assets in CGU
Calculate RA for CGU
Calculate I.loss for CGU
Allocate loss over CGU in ratio of CA
Reversal of Loss to CGU
Reversal upto original CA
Reversal allocated on ratio of CA
as on date of reversal
Treatment of G/W
Unallocable
If benefit from G/W cannot be quantified for related CGU
Calculate I.loss for which related CGU separately
Allocate I.loss to G/W first
Remaining I.loss allocated over CGU in ratio of CA
Allocable
Allocate G/W to CGU on some reasonable basis
Quantified Synergy
Calculate RA for each CGU separately
Calculate I.loss for each CGU separately
Adjust I.loss against G/W first but to the exxtent of respective share in G/W
No reversal of I.loss for G/W
Corporate Assets
They are necessary to obtain cash flows
from other assets & CGU
Allocable
Allocate corporate asset in ratio of CA of CGU
If useful life is different for assets in CGU,
allocate using weights
Weight = CA x Useful life
Calculate I.loss for each CGU after
including share in corporate assets
Divide I.loss btw CGU and corp. asset in ratio of CA
Unallocable
Calculate I.loss for individual CGU
without including corp. asset
Revise CA of CGU after I.loss
Add CA of corp. asset with total CA of CGU
Identify recoverable amt for whole business
I.loss = Step 4 -Step 5
Annual Test for Intangible Assets
At any time.
It will be done on same date next year.
Indication for impairment happens before annual test date
Impairment test on indication date
Inter-Dept. Transfer
Active market exists for the output of process
Estimate separate cash flows and do impairment test
No active market for output of process
Consolidate processes into CGU for impairment test
Disclosures
Individual Assets
I.loss written off in current year
Reversal of I.loss in current year
CGU
I.loss (Current year)
Reversal of I.loss (Current year)
CA of Assets in CGU
Revised CA of Assets
Basis of Formation of CGU
G/W
I.loss (Current year)
Method of treatment
(Allocable or Unallocable)
Basis of Identification of Related CGU
Corporate Assets
CA
I.loss (Current year)
Reversal of I.loss (Current year)
Revised CA
Nature (Allocable or Unallocable)
Impairment of Investment in Subsidiaries
Identify G/W in subsidiary as a whole
Calculate I.loss including G/W as a whole
Divide I.loss btw Holding & Non Controlling Interest in ratio of their investment