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)

Measurement of RA

FV - Cost (direct cost related to asset ready to disposal)

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)

(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

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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

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

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 RAif:

  • 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)

⚠ 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

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
  • (DR) other asset in CGU (pro-rat basis)
  • (CR) SOPL