Impairment ASPE 3063 IAS 36

Question 1

When should a long-lived asset be tested for
impairment?

Answer 1

ASPE 3063/3064
* Test whenever events or changes in circumstances
indicate that the carrying amount may not be
recoverable including (but not limited to):
* Decrease in market price
* Change in use or physical condition

IAS 36
* Must assess at the end of each reporting period whether there is any indication that an asset may
be impaired. If any such indication exists, must test for recoverability
* Regardless of whether there is any indication of impairment must also test for recoverability:
‒ Annually for intangible assets with an indefinite useful life or an intangible asset not ready for use
‒ Annually for goodwill acquired in a
business combination

Question 2

How do you determine if an asset is
impaired?

Answer 2

ASPE 3063
* Asset is impaired if carrying value is greater than
undiscounted future cash flows from use and
eventual disposition

IAS 36
* Asset is impaired if carrying value exceeds the recoverable amount which is defined as
greater of:
‒ FV less cost to sell
‒ Value in use
* Value in use is based on discounted cash flows from use and eventual disposition of asset

Question 3

What value is an impaired asset written down to (how is the impairment loss measured)?

Answer 3

ASPE 3063
* Asset is written down to Fair value measured either by quoted market prices (preferable if they exist)
or discounted* future cash flows to be realized (from use and eventual disposition)

*Note that undiscounted future cash flows are used to assess IF the asset is impaired but discounted cash flows are used to calculate the AMOUNT of the impairment

IAS 36
* Asset is written down to Recoverable amount
defined as the higher of:
‒ fair value less costs to sell
‒ value in use (PV of future cash flows from
use and eventual disposition)

Question 4

It is sometimes not possible to determine the recoverable amount of an individual asset. In this case, how are assets grouped for purposes
impairment testing and how would the loss be allocated to the assets in the group?

Answer 4

ASPE 3063
* Grouped with other assets and liabilities to form an “asset group” at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities

• Loss is allocated on a pro rata basis using the relative carrying amounts of the assets in the group
• Loss allocated to an individual asset of the group should not reduce the carrying amount of that
  asset below its fair value (whenever the fair value is
  determinable without undue cost and effort)
• Goodwill is tested separately at the reporting unit level

IAS 36
* Similar to ASPE

• Assets are combined into cash-generating unit (CGU)

‒ the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets
* Goodwill is allocated to CGU’s
* Loss is allocated first to any goodwill allocated to the CGU (until goodwill is reduced to zero) and then to other assets on a pro-rata basis using relative carrying values

Question 5

Can an impairment loss be reversed?

Answer 5

ASPE 3063
* No

IAS 36
* Yes
‒ For all assets except goodwill
‒ When there has been a change in the estimates used to determine the recoverable amount i.e. based
on new estimates the recoverable amount has increased