Impairment (PAS 36) Flashcards
Definition Caje
Impairment is defined as a decrease in an asset’s market value wherein its recoverable amount is less than the carrying amount in the Statement of Financial Position
Scope:
PAS 36 applies in accounting for impairment of the following assets (4):
- Property, plant and equipment
- Intangible assets
- Invesment property measured under cost model
- Investments in associates, joint ventures and subsidiaries
Explain Impairment loss / Cost Principle?
Is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its
recoverable amount.
The excess is written off as an impairment loss, which should be recognized in PROFIT OR LOSS.
Measurement or how to determine Recoverable Amount?
Determining Recoverable Amount
a) Recoverable amount is the higher of fair value less costs to sell and value in use.
b) If fair value less costs to sell cannot be determined, then recoverable amount is value in use.
c) For assets to be disposed of, recoverable amount is fair value less costs to sell.
Examples of Costs of Disposal
- Legal costs, stamp duty and similar transaction taxes
- Costs of removing the asset
- Direct costs of bringing an asset into the condition for its sale
Explain Value in Use (VIU)
VIU - The present value of future cash flows expected to be derived from an asset
The calculation of value in use should reflect the following elements:
a) An estimate of the future cash flows the entity expects to derive from the asset in an arm’s length transaction.
b) Expectations about possible variations in the amount or timing of those future cash flows.
- Explain Impairment Loss for Revalued Asset (with Revaluation Surplus)
- And provide entry if may revaluation surplus
Alam mo naman na Impairment loss is recognized immediately sa P/L diba? However, if the asset is carried as Revalued Amount, the REVALUATION SURPLUS IS DECREASED FIRST AND ANY EXCESS IS RECOGNIZED IN P/L.
- Dr. Revaluation Surplus
Dr. Impairment Loss
Cr. Accumulated Impairment Loss/Allowance for impairment loss/ Accumulated Depreciation
Explain Impairment of Intangible Assets such as Goodwill
WHETHER OR THERE IS INDICATION OF IMPAIRMENT OR NOT, An entity must annually test an intangible asset with an indefinite useful life or an intangible asset that is not yet ready for use for impairment
The entry and procedure is still the same with normal standard
What is CGU?
A CGU is defined as the SMALLEST idenfiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets
Provide examples of CGU
Department Store of a mall, bookstore of a school, product line, etc.
When an asset belongs to CGU, the recoverable amount is determined for the CGU to which the assets belongs. In this case, the asset is tested for impairment together with the other assets in the CGU as a whole.
Kasi nga as a rule, If an item is revalued, the entire class of assets to which that asset belongs should be revalued.
Explain the procedure of impairment of Cash Generating Unit (CGU)
Tested for impairment atleast annually.
A CGU is tested for impairment by comparing the CGUs carrying amount, INCLDUING GOODWILL, with its recoverable amount.
ITO MAHALGA:
The impairment loss on the CGU is allocated as follows:
1. Frist, to any goodwill included in the CGU;
2. Then, to other assets of the CGU pro rata based on their carrying amounts
INOTE MO DIN TO:
After the above procedure, when allocating the impairment loss, the CA of an asset belonging to the CGU SHALL NOT BE REDUCED BEOW THE HIGHEST OF THE THREE AMOUNS:
1.FV less cost to sell
2. VIU
3. Zero
So, any amount that cannot ba llocated to the asset due to limitation above, i allocate mo lang ulit sa iba pro rata. (Parang partnership lang basic)
What are the Exceptions for Impairment (PAS 36)? Hindi ini-impair.
- Financial Instruments (IFRS 9)
- Inventories (IAS 2)
- Investment Properties under FV Model (IAS 40)
- Biological Assets (IAS 41)
- NonCash Assets Held for Sale (IFRS 5)
- Assets Arising from Employee Benefits (IAS 19)
- Deferred Tax Assets (IAS 12)
- Assets arising from LT Cons Contracts (IAS 11/IFRS 15)
- Assets arising from Insurance Contracts (IFRS 4/IFRS 17)
But for CGU, kasama sila sa computation of CA. Hindi wag lang isama sa allocation of impairment loss!
Where cash generating unit is disposed of, any goodwill associated shall
a. Be written off against retained profits
b. Be included in the calculation of gain or loss
c. Not be included in the calculation of gain or loss
d. Not be written off to the income statement entirely
b. Be included in the calculation of gain or loss
