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IAS 36 – Objective and Scope
 IAS 36 ensures that assets are reported on the statement of financial position at no more than the entity can recover from their use or sale.
 May be an impairment loss—“the amount by which the carrying amount of an asset or a cash-generating unit (CGU) exceeds its recoverable amount”
 IAS 36 excludes:
o inventories
o assets arising from construction contracts
o employee benefit assets
o deferred tax assets
o financial assets under IAS 39
o non-current assets or disposal groups held-for-sale
o investment property, biological assets based on FV measurements

IAS 36 – Identifying an Asset that May Be Impaired
 Assets
o end of each reporting period
o assess for indications of impairment
o if indications of impairment, test for impairment
 Intangibles with indefinite lives, those not yet ready for use, and goodwill
o annually
– test for impairment regardless of indications of impairment
Testing for impairment:
 Estimate asset/CGU’s recoverable amount. If recoverable amount is greater than the carrying amount – no impairment.
 Recoverable amount - higher of:
o fair value less costs to sell, and
o value in use
 For assets that do not generate independent cash flows on their own – group into cash-generating units (CGUs)
 CGU – “the smallest identifiable group of assets that generates cash flows that are largely independent of the cash flows from other assets or groups of assets”
 Fair value less costs to sell = proceeds from arm’s-length sale of an asset/CGU between knowledgeable willing parties less incremental direct costs of its disposal
 Best measure: arm’s-length bargained price in a binding sales agreement in an active market.
 Hierarchy of appropriate methods to establish fair value
 Disposal costs: e.g., legal costs, transaction taxes, removal costs, costs to put in condition for sale
 Value in use = present value of the future cash flows expected from asset/CGU’s use and ultimate disposal
 Two approaches:
o Most likely cash flows from use and disposal discounted using risk-adjusted discount rate.
o Probability-weighted cash flows from use and disposal discounted using remaining risk-adjusted discount rate.

IAS 36 – Recognizing and Measuring an Impairment Loss for CGUs and Goodwill
 Goodwill allocated to a CGU or group of CGUs not larger than an “operating segment” that is:
o expected to benefit from synergies of a combination
o at lowest level in organization that manages the goodwill
o not on an arbitrary basis
 If part of CGU with allocated goodwill is sold:
o allocate goodwill between portion sold and portion remaining
o base on relative value of the CGU sold to portion retained

IAS 36 – Reversing an Impairment Loss
 No reversal of impairment loss for G/W
 For other assets, reversal permitted if estimates used to determine recoverable amount have changed
 For an individual asset:
o reversal limited to an increase to what asset would have been, net of depreciation/amortization, if no impairment had been recognized initially
o unless accounted for under the revaluation model – when full reversal is permitted

Hashtags: #accounting, #acca, #ifrs, #videolectures, #tutorial, #charteredaccountant, #gaap

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