IAS 36-Impairment of Asset
IAS 36 applied to all assets other than
-Inventory (IAS2)
-Construction contracts (IAS11)
-Deferred tax assets (IAS12)
-Assets arising from employee benefits (IAS19 is exclude from the paper)
-Financial assets included in the scope of IAS32
-Investment property measured at fair value (IAS40)
-Non-current assets classified as held for sale (IFRS5)
Impairment
An impairment exists if: Carrying value > recoverable amount
Recoverable amount is greater of fair value less costs to sell and value in use
Indicators of Impairment
IAS 36 requires that at each reporting date, an entity must assess whether there are indications of impairment.
External sources of information
-The asset’s market value has declined more than expected.
-Changes in the technology, market, economic or legal environment have had an adverse effect on the entity
-Interest rates have changed, thus increasing the discount rate used in calculating the asset’s value in use.
Internal sources of information
-There is evidence of obsolescence of or damage to the asset.
-Changes in the way the asset is used have occurred or are imminent.
-Evidence is available from internal reporting indicating that economic performance of an asset is, or will be, worse than expected.
If an indicator of an impairment exists then an impairment review must be performed.
Where there is no indication of impairment then no further action need be taken.
An exception to this rule is:
-Goodwill acquired in a business combination
-An intangible asset with an indefinite useful life.
-An intangible asset not yet available for use.
Cash Generating Units (CGUs)
What is a CGU?
A CGU is defined as the smallest identifiable group of assets which generates cash inflows independent of those of other assets.
When assessing the impairment of assets it will not always be possible to base the impairment review on individual assets.
-The value in use calculation will be impossible on a single asset because the asset does not generate distinguishable cash flows.
-In this case, the impairment calculation should be based on a CGU.
Reference:
-ACCA, F7 Financial Reporting by KAPLAN PUBLISHING
-ACCA, F7 Financial Reporting by BPP