IMPAIRMENT (IAS 36) Flashcards
What is the scope of IAS 36 IMPAIRMENT? (Which assets are tested for impairement and which not)?
All assets, except:
inventories,
construction contracts,
deferred tax assets,
employee benefits,
financial assets,
investment property,
biological assets,
insurance contract assets,
asset hel for sale
When to test for impaiment?
- Whenever there is an indication of impairment (indicators are assessed each reporting date).
- Annually, compulsory for:
- Intangible assets with an indefinite useful life
- Intangible assets not yet available for use
- CGUs to which goodwill has been allocated
Into which groups are classified the indicators of impairment contained within IAS 36?
- External sources of information
- Internal sources of information
- Indicators in respect of dividends received from a subsidiary, joint venture or associate (investee)
- Materiality and previous calculations
- Events after reporting date
Which indicators come from external sources of information?
- Significant decline in market value of the entity
- Changes in entity’s environment or market
- Low market capitalisation
- Increase in market interest rates
Which indicators come from internal sources of information?
- Evidence of obsolescence or physical damage to asset
- Declining asset performance
- Changes to entity’s business model/plans to restructure
When is allowed to reverse impairment? How to account for it?
- Individual asset: recognise the reverse impairment in profit and loss unless asset carried at revalued amount;
- CGUs: allocated to assets of CGUs on a pro-rata basis.
- Goodwill: impairment of goodwill is never reversed.
Which types of assets need to be reviewed for impairment each year ?
Individual assets
CGUs
What is a CGU?
A CGU is the smallest identifiable group of assets that generates cash flows that are independent of the cash inflows from other assets or group of assets.
When assets can be allocated to CGUs?
Allocate assets to a CGU if either:
- They can be directly attributed to the CGU, or
- They can be allocated to the CGU on a reasonable and consistent basis
When is impairment recognised? (calculation)
Impairment is recognised if:
Carrying amount > Recoverable amount
What is the carrying amount?
Is the amount at which an asset is recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses.
How is calculated the CGUs carrying amount?
CGU carrying amount calculated as:
Directly Attributable Assets
+Goodwill (grossed up)
+Share of Corporate Assets
-Liabilities (where applicabile)
-Net Working Capital
If is not possible to estimate the recoverable amount for individual assets, what should the enity do in order to test the asset for impairment?
Determine the recoverable amount for CGU to which asset belongs, and then test for impairment.
How is calculated the Recoverable Amount?
Recoverable Amount is calculated as the higher of:
- Fair value less cost of disposal (FVLCD)
- Value in Use (VIU)
What is Fair Value? (def.)
FV 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.
