BCZ12-BCZ13), Recoverable amount based on fair value (paras. It also specifies when an entity shall reverse an impairment loss and prescribes disclosures. IN1 Hong Kong Accounting Standard 36 Impairment of Assets (HKAS 36) replaces SSAP 31 Impairment of Assets (issued in 2001), and should be applied: (a) on acquisition to goodwill and intangible assets acquired in business combinations for which the agreement date is on or after 1 January 2005. BC216-BC222), Transitional impairment test for indefinite‑lived intangibles (paras. The discount rate used must be plausible. When an asset is impaired, the company must record a charge for the impairment expense. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. 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. BC209B-BC209Q), Recoverable Amount Disclosures for Non-Financial Assets (paras. Before finalising the allocation of goodwill, it is useful to think about how goodwill is going to be tested. 355.5 billion yen, including impairment losses of goodwill and intangible assets in the solar, consumer-use lithium-ion batteries and mobile phone businesses. Solution. When calculating the value in use, typically a company should estimate the future cash inflows and outflows from the asset and from its eventual sale, and then discount the future cashflows accordingly. 18-57) Recognising and measuring an impairment loss (paras. View 03. IAS 36 Impairment of assets. 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. However, additional considerations apply. The purpose of this article is to discuss the appropriateness of the above provision of IAS 36. Forecasts need to be based on the latest budgets or forecasts, be reasonable and supportable and consistent with analysts' forecasts for the sector and the views of third-party experts. BC228A), Transition provisions for Recoverable Amount Disclosures for Non-Financial Assets (paras. 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. BCZ46-BCZ51), Discount rate (paragraphs 55-57 and A15-A21) (paras. Additionally, the standard specifies the situations that might indicate that an asset is impaired. financial instruments and inventories) and IAS 36 is therefore predominately applicable to property, plant and equipment, Certain intangibles such as goodwill can be tested for impairment at an earlier date than at the end of the year with any changes updated in the year-end valuation. If you navigate away from this document, the view date will reset. BC170A), Timing of impairment tests (paragraphs 96-99) (paras. Caluclate the impairment loss to be charged in the income statement. using practical examples and interim tests to enhance understanding. Sometimes the carrying amount of the non-current asset is not the same as the recoverable amount of these assets. IAS 36 also explains how a company should determine fair value less costs to sell. Allocation of goodwill and corporate assetsto different CGUs is covered below. Editorial Note. An impairment loss is the amount by which the carrying amount of an asset or cash-generating unit (CGU) exceeds its recoverable amount. 65-108), Reversing an impairment loss (paras. Trigger for impairment testing. BCZ108-BCZ112), Cash‑generating units (paragraphs 66-73) (paras. IAS 36 deals also with reversals of impairment loss for individual assets as well as for CGU. It is imperative for companies to assess the external environment and look for the indicators below to decide when to impair assets. Contents. If this is the case, then the carrying amount of the asset shall be increased to its recoverable amount. BC131-BC177), Allocating goodwill to cash‑generating units (paragraphs 80-87) (paras. Trigger for impairment testing. 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. 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. So, there is a need to account for impairment losses under IAS 36 requirements. For example, where an asset is being held for disposal, the value of this asset is likely to be the net disposal proceeds. IAS 36 Impairment of Assets The Board has not undertaken any specific implementation support activities relating to this Standard. BCZ31-BCZ39), Net realisable value (paras. If carrying value of an asset exceeds its recoverable value then the excess is treated as impairment loss. 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. 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. Where the recoverable amount of an asset is less than its carrying amount, the carrying amount will be reduced to its recoverable amount. The core underlying principle of IAS 36 Impairment of Assets is that an asset’s carrying value in the financial statements of the company should not exceed the highest amount the business can recover through its use or sale.. IAS 36 deals also with reversals of impairment loss for individual assets as well as for CGU. The future cashflows from this asset from its continuing use are likely to be negligible. It provides guidance on the use of … If an asset’s recoverable amount is less than its carrying value, then the asset is impaired and IAS 36 requires that an 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). Interest rates are falling in many jurisdictions, but other factors affect discount rates in impairment calculations. The principles and procedures of IAS 36 that apply to impairment of other non-financial assets apply equally to right-of-use assets. Impairment considerations for lessees. These are external events, such as a decline in market value, or internal causes, such as physical damage to an asset. The principle of IAS 36 Impairment of Assets is that assets should be carried at no more than their recoverable amount. Recoverable amount = Resale value - expenses necessary to make sale = 120,000 - 25,000 = 95,000. Therefore, the cashflow forecasts for a VIU test may differ from the cashflows in the approved budgets. BC121-BC128), Measuring recoverable amount and accounting for impairment losses and reversals of impairment losses (paras. The following assets, amongst others, are scoped out of IAS 36: • Inventories, • Assets arising from construction contracts, • Deferred tax assets, IAS 36 Impairment of Assets contains a number of examples of internal and external events which may indicate the impairment of an asset.. CLASS EXAMPLE_IAS 36 Impairment of assets.pdf from ACCOUNTING CACCO12 at University of Limpopo. For CGUs, the impairment loss is allocated to goodwill first, and then to the rest of the assets pro rata on the basis of the carrying amount of each asset (IAS 36.104). 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