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IAS 36 Impairment of Asset, IAS 36 Cash-generating unit - Coggle Diagram
IAS 36
Impairment of Asset
Impairment Loss
CV of asset / CGU > RA
RA = higher of FV-Cost / V in Use
Impairment occur when the intangible asset is deemed less valuable than is stated on the SOPL after amortization / depreciation (prudence concept)
cost constraint
( if have evidence
conduct impairment test
)
external
market value < expected
adverse effect (change in technology, market, economy, legal)
market interest / discount rate increase & PV decrease
NA > market capitalization
market capitalization = mkt price / share * no.of share
internal
obsolete
physical damage
idle
-restructuring
-intangible (indefinite to definite)
internal reporting (economic performance of asset worse than expected)
Recognized of Imp Loss
Cash - Generating Unit (CGU)
(individual asset)
Historical cost model
reduction recognized in
"SOPL"
(DR) SOPL (impairment loss)
(CR) Assets
future depreciation = (RA - revised RV)/revised remaining useful life
imp must be consistent with depreciation
cost/ admn. dism
CA - RA
Revaluation model
imp loss
"SOPL"
(unless have balance in Reserve then charge to
OCI
)
(DR) OCI(RS)
(DR) SOPL (excess of imp loss above in RS)
(CR) Assets
future depreciation = (RA - revised RV)/revised remaining useful life
Measurement of RA
FV - Cost
(direct cost related to asset ready to disposal)
Subsequent Measurement
As RA choose FV less cost to sell, mean that the entity must be sell ASAP
if within IFRS 5, asset must be reclassify as a
CA Held for Sale
& no further depreciation will be charge
Value in Use
estimate future cash inflow & outflow
(reasonable & supportable assumption / estimate)
(exclude future restructuring/ enhancing/ income tax/ financing actv/ cash inflow receivable/ payable)
(forecast maximum period of five years)
expectation about possible variation
time value of money (discount rate)
(reflect return that market participant)
(if no observable = used
WACC
)
(adjust for ridk)
uncertain inherent in price (market participant)
Subsequent Measurement
NCA will be carried at SOFP at it...
As RA choose is value in use, then the entity must
a. continue to use asset
b. charge depreciation
c. conduct annual impairment test
Reversal of Impairment loss
Rule:
evidence (same - internal & external) that created imp loss in the first place
change in accounting estimate (prospective adjustment)
1st other asset only!
no reversal permitted for Goodwill
intangible also restatement is prohibited
Cost model
SI : CA increase subject to 'ceiling'
S2: CA (not impairment loss recog in prior year) & RA
S3: adjust future depreciation to allocate the revised CA
(DR) NCA
(CR) SOPL
Revaluation model
S1: recog in SOPL to extend imp loss previous recog in SOPL
excess revaluation increase (increase in OCI & revaluation surplus)
S3: adjust future depreciation to allocate the revised CA
(DR) NCA
(CR) SOPL
IAS 36
Cash-generating unit
Definition:
CGU is the smallest identifiable group of asset that generate cash inflow that are largely independent of the cash inflows from other asset or group of asset
if no estimate the RA of individual asset, then need to consider RA of CGU.
Cannot determine RA
if:
Value in use cannot be estimate to be closed to its FV - Cost to sell
asset does not generate cash inflows
CGU & Goodwill
GW related to CGU but
has not been allocated
must test impairment
if CA > RA, recognized impairment loss
(DR) SOPL
(CR) Asset imp in CGU (pro-rata)
GW
has been allocated
test impairment test annually
(DR) SOPL
(CR) GW allocated to the CGU (first)
(CR) other asset of the CGU (pro-rata basis)
Recognition of impairment loss
Exception to Rule I
impairment loss must be first be charged to specific asset within CGU
First, to asset
second, GW allocated to CGU
Rule II
(CV after Imp Loss)
First do Rule I then calculate CV after Imp loss
state that CV after Imp loss cannot fall below the higher of V in U / FV - COST / ZERO
Rule I
recognition
impairment loss
when RA of CGU < CV in
SOFP
the loss should be allocated between the asset in CGU
First, GW allocated to CGU
Second, to all other asset (pro-rata basis)
:warning: CGU & Goodwill
WOS 100%
DOA , IFRS 3 calculate
(Goodwill = pd + NCIn -NA Acq)
Goodwill cannot be amortization
must conduct impairment test
DOR (Imp test IAS 36)
Using
Rule I/ II/ exception I
POS 80%
partial goodwill
full goodwill
Gross up
goodwill imp up to H%
impairment of other asset (H & NCIn)
No gross up
Goodwill imp split to H & NCIn
Imp of other asset (H & NCIn)
Reversal of Impairment loss
Rule:
evidence (same - internal & external) that created imp loss in the first place
change in accounting estimate (prospective adjustment)
1st other asset only!
no reversal permitted for Goodwill
intangible also restatement is prohibited
(DR) other asset in CGU (pro-rat basis)
(CR) SOPL