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IAS 36: IMPAIRMENT OF ASSETS - Coggle Diagram
IAS 36: IMPAIRMENT OF ASSETS
Indicators of impairment
External
Significant changes with an adverse effect on the entity [technological or market environment, economic or legal environment]
Increased market interest rates or other market rates of return affecting discount rates :arrow_right: reducing value in use
Observable indications that the asset's value has declined during the period significantly more than expected due to the passage of time or normal use
Carrying amount of net assets of the entity exceeds market capitalisation
Internal
Significant changes with an adverse effect on the entity:
:no_entry: The asset becomes idle
:no_entry: Plans to discontinue/restructure the operation to which the asset belongs
:no_entry: Plans to dispose of an asset before the previosuly expected date
:no_entry: Reassessing an asset's useful life as finite rather than indefinite
Internal evidence available that asset performance will be worse than expected
Evidence of obsolescence or physical damage
Annual impairment test
Annual impairment tests are required for:
:warning: Intangible assets with an indefinite useful life / not yet available for use
:warning: Goodwill acquired in a business combination
Recoverable amount [higher of]
Fair value (-) costs of disposal
Example of costs of disposal: legal costs, stamp duty and similar transaction taxes, costs of removing the asset and direct incremental costs to bring an asset into condition for its sale.
Exclude
finance costs and income tax expense.
:warning: For assets to be disposed of, recoverable amount is fair value (-) costs of disposal
Value in use
:memo: PV of cash inflow (-) PV of cash outflow (+) net proceeds from disposal
The discount rate should be a PRE-TAX (borrowing rate)
Cash-generating units
Definition
The
smallest identifiable group of assets that generates cash inflows
that are largely independent of the cash inflows from other assets or group of assets
Allocation for impairment losses in CGU
Goodwill
Specific assets
Pro-rata basis for remaining assets
Important notes
:!!: Carrying amount of an asset
cannot be reduced below the higher
of its recoverable amount and zero
:!!: It is usually assumed that current assets are already stated at their recoverable amount.
Therefore impairment loss = 0
Impairment losses
Formula
:memo: Impairment loss = Carrying amount of an asset (-) Recoverable amount
Recognition in financial statements
:check: Assets carried at historical cost: IL goes to SOPL
:check: Revalued assets: IL goes to OCI for the first time :arrow_right: goes to SOPL for the second time (after charging revaluation surplus)
Reversal of past impairments
No reversal for unwinding of discount
Reversal is recognised in profit or loss.
For revalued assets :arrow_right: recognised first with amount in SOPL and remaining amount goes to OCI
Carrying amount for an asset due to reversal
should not be more than the lower
of its recoverable amount and its depreciated carrying amount [before impairment loss is recognised]
A reversal for a CGU is allocated pro rata with the carrying amounts of those assets
except for goodwill
Corporate assets
Definition
Group or divisional assets such as a head office building or a research centre.
They do not generate cash inflows independently.
Allocation of impairment losses with unallocated corporate assets or goodwill
Test of individual CGUs
Test of group of CGUs
Unallocated corporate assets or goodwill are those which cannot be allocated on a
non-arbitrary basis
[reasonable and consistent basis]