1. Impairment Mark Fielding-Pritchard mefielding.com1

2. Impairment IAS 36 mefielding.com 2 Current carrying value Fair value less selling costs (Net Realisable Value) Value in Use Recoverable Amount Higher of Lower of New carrying amount

3. IAS 36 – Impairment of cash generating assets  Need to consider if carrying value of assets at the financial reporting date are materially correct  If recoverable amount < carrying value, impair asset  Recoverable amount is > of value in use, or fair value less costs to sell  Value in use = present value of future cash flows arising from the asset  Impairment charge recognised in statements: - Revaluation reserve, where reserve in place - Balance (if any) charged to expenses  Annual impairment reviews for: - Purchased goodwill - ITAs with indefinite useful economic lives - ITAs not yet in use mefielding.com 3

4. IAS 36 – Impairment of cash generating assets  Standard not applied to: - Cash generating assets held under IAS 16 at revaluation - ITAs revalued regularly to fair value - Goodwill mefielding.com 4

5. Impairment IAS 36  Symington  Recoverable value is the higher of value in use (VIU) and net realisable value (NRV).  Symington have three machines that are suspected of impairment. The figures are as follows:  $‘000 $‘000 $‘000  Carrying value 300 400 500  Value in use (VIU) 290 170 540  Net realisable value (NRV) 110 230 20 mefielding.com 5

6. Impairment IAS 36  Symington  Before 300 400 500  Impairment (10) (170) (0)   After 290 230 500 mefielding.com 6

7. Impairment IAS 36 MinEd 1  MinEd acquired a business on 1/1 for $230,000. The values of the assets of the business at that date based on book values were as follows ($000s):  Garage 20  Computers 10  Vehicles 90  Licences 30  Trade receivables (all recoverable) 10  Cash 50  Trade payables 20 mefielding.com 7

8. Impairment IAS 36 MinEd 2  On 1 February, three vehicles were stolen. The net selling value and net book value of each vehicle was $10,000. The vehicles were uninsured. On 1 February a rival company commenced business in the same area. It is anticipated that the business revenue of AB will be reduced leading to a decline in the present value of the business, to $140,000. It is unlikely the business could be sold as a going concern. The net selling value of the licences have fallen to $25,000 as a result of the rival. mefielding.com 8

9. Impairment IAS 36 MinEd 1  Goodwill 40 (40) -  Garage 20 (10) 10  Computers 10 (5) 5  Vehicles 90 (30) 60  Intangibles 30 (5) 25  Receivables 10 - 10  Cash 50 - 50  Payables (20) - (20)  Total230 (90) 140 mefielding.com 9

10. Telepath June 2012 a)  Reviewing assets to see if there has been a permanent fall in value  Value being either financial value or value in use  Need to look at complete class of assets which form a cash generating unit  Assets in a cash generating unit may be a production process, sales unit. A group of assets which generate cash  Information on the ‘value’ drawn from both internal and external sources mefielding.com10

11. Telepath June 2012 bi) Current carrying value [800000-[{800000- 50000}/5]2 500000 Value in Use 2013220 x 0.91200.2 2014180 x 0.83149.4 2015170 x 0.75127.5 201550 x 0.7537.5 514.6 mefielding.com11 Value in use is greater than carrying value so no impairment

12. Telepath June 2012 bii) BeforeAdjustmentAfter Goodwill1800 Patent1200(200) Building4000 Plant3500(500) Receivables15000 12000(5300)6700 mefielding.com12 ‘Fixed’ adjustments are $700, leaving $4600. Allocate first against goodwill, then against building & plant in proportion 4/3

13. Telepath June 2012 bii) BeforeAdjustmentAfter Goodwill1800(1800)0 Patent1200(200)1000 Building4000(1600)2400 Plant3500(500)(1200)1800 Receivables1500 1200053006700 mefielding.com13 5300- (1800+200+500)= 2800 Building 4/7 x 2800= 1600 Plant 2800-1600= 1200