impairment of assets - ias 36

7/30/2019 Impairment of Assets - IAS 36

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(IAS 36)Presented by :- R. Charan Teja, I M.Fin.


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SCOPE OF IAS 36Applies to:- land buildings machinery and equipment

investment property carried at cost intangible assets goodwill investments in subsidiaries, associates, and joint

ventures carried at cost assets carried at revalued amounts under IAS 16

and IAS 38


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WHAT IS IMPAIRMENT?

IMPAIRMENT:- An asset is impaired whenits carrying amount exceeds its

recoverable amount.IMPAIRMENT LOSS:- An impairment loss is

the amount by which the carrying

amount of an asset or a cash-generatingunit exceeds its recoverable amount.


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Carrying amount is the amount at which an asset isrecognised after deducting any accumulated depreciation(amortisation) and accumulated impairment losses.

Recoverable Amountof an asset or a cash-generating unit isthe higher of its fair value less costs to sell and its value in use.

Fair value less costs to sell is the amount obtainable fromthe sale of an asset or cash-generating unit in an arms lengthtrans action between knowledgeable, willing parties, less the costsof disposal.

is the present value of the future cash flows

expected to be derived from an asset or cash-generating unit.


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INDICATORS OF IMPAIRMENT

External sources:

market value declines

negative changes in technology,markets, economy, or laws

increases in market interestrates

company stock price is belowbook value

Internal sources:

obsolescence or physical

damage

asset is part of a restructuringor held for disposal

worse economic performancethan expected

These lists are not exhaustive.


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The recoverable amounts of certain

intangible assets should be measuredannually whether there is indication of

impairment or not:-

intangible asset with an indefinite useful life

intangible asset not yet available for use

goodwill acquired in a business combination


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DETERMINING RECOVERABLE

AMOUNT

If fair value less costs to sell or value in use is morethan carrying amount, it is not necessary to calculatethe other amount. The asset is not impaired.

If fair value less costs to sell cannot be determined,then recoverable amount is value in use.

For assets to be disposed of, recoverable amount is fair

value less costs to sell.


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FAIR VALUE LESS COSTS TO SELL

A binding sale agreement

An active market for that type of asset.

If, no active market, use the best estimate of the asset'sselling price.

Costs of disposal are the direct added costs only.


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VALUE IN USE

Calculation should reflect the following:-an estimate of future cash flows

expectations about possible variations

the time value of money

the price for bearing uncertainty

other factors


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CASH GENERATING UNIT

Recoverable Amount is estimated for an individualasset. If not possible to estimate the RA of individualasset, determine the RA of the CGU to which the assetbelongs.

CASH GENERATING UNITis the smallestidentifiable group of assets that generates cash inflows

that are largely independent of the cash inflows fromother assets or groups of assets.


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IMPAIRMENT OF CGU

Goodwill must be allocated to each CGU or groups ofCGUs.

The impairment loss is allocated to:- first, reduce the carrying amount of any goodwill

allocated to the CGU; and

then, reduce the carrying amounts of the other assets

of the unit on pro-rata basis.


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The carrying amount of an asset should

not be reduced below the highest of:-

its fair value less costs to sell (if determinable),

its value in use (if determinable), and

zero.


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PROCESS OF IMPAIRMENT TESTING


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REFERENCESAccounting Standards and Corporate AccountingPractices Dr. T.P.Ghosh.

International Financial Reporting Standards HennieVan Greuning.

www.ey.com

www.ifrs.org

www.iasplus.com


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THANK YOU


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impairment of assets - ias 36

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