1. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Impairment is determined by comparing the carrying
amount of the asset with its recoverable amount. This is the
higher of its fair value less costs of disposal and its value
in use.

2. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Accounting issues
The objective of IAS 36 Impairment of assets is to set rules to ensure that the assets of an enterprise are carried at no more than their recoverable amount (i.e. value to the business).
An asset is impaired it its recoverable amount is below the value currently shown on the statement of financial position.

3. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Accounting issues
The recoverable amount is taken as the greater of net sell price and value in use. This is because there are two ways that the business can get value form the asset, selling it or using it. Value in use is calculated as the present value of the cash flows relating to the asset.

4. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Accounting issues
An impairment loss, being the carrying amount of an asset its recoverable amount, is recognized immediately in I/S. If the asset is revalued in accordance with another standard, the impairment loss is treated as a revaluation decrease in accordance with that other standard.

5. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Indications of impairment
An entity should assess at the end of each reporting period
whether there are any indications of impairment to any
assets.
If there are indications of possible impairment, the entity is
required to make a formal estimate of the recoverable
amount of the assets concerned.
IAS 36 suggests how indications of a possible impairment of
Assets might be recognised. The suggestions are based
largely on common sense.

6. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Indications of impairment
In addition, the recoverable amount of the following asset is measured annually:
An intangible asset with an indefinite useful life
goodwill

7. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
External sources of information
The asset’s market value has declined more than expected.
Changes in the technological, market, economic or legal environment have had an adverse effect on the enterprise
Interest rates have changed, thus increasing the discount rate used in calculating the asset’s value in use.
The carrying amount of the entity’s net assets being more than its market capitalization.

8. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Internal sources of information
There is evidence of obsolescence or damage of the asset.
Change in the way the asset is used have occurred or are imminent.
Evidence is available form internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.

9. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Recognition and measurement of an impairment
If there is no indication of impairment then no further action need be taken. If there is an indication of impairment, the recoverable amount should be calculated and any impairment loss should be immediately recognized in the income statement.

10. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Recognition and measurement of an impairment
What is an asset's recoverable amount?
The recoverable amount of an asset should be measured
as the HIGHER VALUE of: (a) The asset's fair value less costs of disposal (b) Its value in use

11. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Recognition and measurement of an impairment
If the recoverable amount of an asset is lower than the
carrying amount, the carrying amount should be reduced by
the difference (ie the impairment loss) which should be
charged as an expense in profit or loss

12. Topic 1 Tangible Non-current Assets
Example:
A company that extracts natural gas and oil has a drilling
platform in the Caspian Sea. The company is carrying out an
exercise to establish whether there has been an impairment
of the platform.
Its carrying amount in the statement of financial position is $3m.
The company has received an offer of $2.8m for the platform from another oil company.
c) The present value of the estimated cash flows from the platform's continued use is $2.7m
What should be the value of the drilling platform in the statement of
financial position, and what, if anything, is the impairment loss?

13. Topic 1 Tangible Non-current Assets
Solution
Fair value less costs of disposal= $2.8m
Value in use = PV of cash flows from = $2.7m
Recoverable amount = Higher of these two amounts, ie
$2.8m
Carrying value = $3m
Impairment loss = $0.2m
The carrying value should be reduced to $2.8m

14. Topic 1 Tangible Non-current Assets
QUESTION!!!
Revalued assets.
Impairment loss????

15. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Cash-generating units (CGUS)
It may not be possible to estimate the recoverable amount of an individual asset because it is part of a larger group of assets which together from a cash generating unit.
In that case it will be necessary to determine whether there has been an impairment in the recoverable amount of the whole cash-generating unit. A CGU is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets.

16. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Writing down a CGU
When an impairment loss is recognised for a cash
generating unit, the loss should be allocated between the
assets in the unit in the following order.
First, to any assets that are obviously damaged or
destroyed
b) Next, to the goodwill allocated to the cash generating unit
c) Then to all other assets in the cash-generating unit, on a
pro rata basis

17. Example: allocation of impairment of loss
A cash-generating unit comprises the following: $m
Building
Plant and equipment
Goodwill
Current assets
Following a recession, an impairment review has estimated
The recoverable amount of the cash-generating unit to be
$50m.
How do we allocate the impairment loss?

18. Example: allocation of impairment of loss
Carrying amount Carrying amount Impairment loss post-impairment $m $m $m
Building (5)
PPE (1)
Goodwill (10) –
Current assets – (16)

19. Example A company has acquired another business for $4.5m:
tangible assets are valued at $4.0m and goodwill at $0.5m.
An asset with a carrying value of $1m is destroyed in a
Terrorist attack. The asset was not insured. The loss of the
asset, without insurance, has prompted the company to
assess whether there has been an impairment of assets in
the acquired business and what the amount of any such loss
is.
The recoverable amount of the business (a single cash
Generating unit) is measured as $3.1m.

20. Solution There has been an impairment loss of $1.4m.
The impairment loss will be recognised in profit or loss. The
loss will be allocated between the assets in the cash
generating unit as follows.
A loss of $1m can be attributed directly to the uninsured asset that has been destroyed.
The remaining loss of $0.4m should be allocated to goodwill.
The carrying value of the assets will now be $3m for tangible
assets and $0.1m for goodwill.

21. Topic 1 Tangible Non-current Assets
IAS 36 Impairment of Assets
Reversal of pervious impairment losses
Where events turn out to be better than earlier predicted and the recoverable amount increases as a result of improved economic conditions then the previous write-down should be reversed. However the reversal must not take the value of the asset above the original depreciable amount.

22. Question A cash generating unit comprising a factory, plant and
equipment etc and associated purchased goodwill becomes
impaired because the product it makes is overtaken by a
technologically more advanced model produced by a
competitor. The recoverable amount of the cash generating
unit falls to $60m, resulting in an impairment loss of $80m,
allocated as follows Carrying amounts Carrying amounts before impairment after impairment $m $m Goodwill – Patent (with no market value) – Tangible non-current assets (market value $60m) Total

23. Question After three years, the entity makes a technological
breakthrough of its own, and the recoverable amount of the
cash generating unit increases to $90m. The carrying
amount of the tangible non-current assets had the
impairment not occurred would have been $70m.
Required
Calculate the reversal of the impairment loss.

24. Answer The reversal of the impairment loss is recognised to the
extent that it increases the carrying amount of the tangible
non-current assets to what it would have been had the
impairment not taken place, ie a reversal of the impairment
loss of $10m is recognised and the tangible non-current
assets written back to $70m.
Reversal of the impairment is not recognised in relation to
the goodwill and patent because the effect of the external
event that caused the original impairment has not reversed
the original product is still overtaken by a more advanced
model.

25. Exercise
16. Riley acquired a non-current asset on 1 Oct 2009 at a cost of $100,000 which had a useful economic life of ten years and a nil residual value. The asset had been correctly depreciated up to 30 Sep At that date the asset was damaged and an impairment review was performed. On 30 Sep 2014, the FV of the asset less costs to sell was $30,000 and the expected future cash flows were $8,500 per annum at 10% would have a present value of $3.79
What amount would be charged to profit or loss for the impairment of this
asset for the year ended 30 Sep 2014?
A $17,785
B $20,000
C $30,000
D $32,215
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26. Exercise 2014/12-Q12
The net assets of Fyngle, a cash generating unit (CGU), are: $ Property, plant and equipment 200,000 Allocated goodwill 50,000 Product patent 20,000 Net current assets (at net realisable value) 30, ,000 As a result of adverse publicity, Fyngle has a recoverable amount of only $200,000. What would be the value of Fyngle’s property, plant and equipment after the allocation of the impairment loss? A. $154,545 B. $170,000 C. $160,000 D. $133,333
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27. Exercise 2014/12-Q18
Which of the following is NOT an indicator of impairment?
Advances in the technological environment in which an
asset is employed have an adverse impact on its future use
B. An increase in interest rates which increases the discount
rate an entity uses
C. The carrying amount of an entity’s net assets is higher than the entity’s number of shares in issue multiplied by its share price
D. The estimated net realisable value of inventory has been reduced due to fire damage although this value is greater than its carrying amount
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