Impairment Loss

Scope
All assets, except: inventories, construction contracts, deferred tax assets, employee benefits, financial assets under IAS 39,
investment property, biological assets, insurance contract assets under IFRS 4, and held for sale assets under IFRS 5.

Assets to be reviewed
Individual assets
Cash generating units
 (‘CGU’)
The smallest identifiable group of assets that generates cash flows that are independent of the cash inflows from other assets or group of assets.

Impairment: Carrying Amount > Recoverable Amount

Recoverable amount of an asset or cash generating unit is the HIGHER of its fair value less costs to sell and its value in use.

>FAIR VALUE LESS COSTS TO SELL
Amount obtainable in an arm’s length
transaction less costs of disposal.
Fair Value

• Binding sale agreement
• Market price in an active market Costs to sell
• Incremental costs attributable to the disposal of an asset

>VALUE IN USE (VIU)
Represents the discounted future net cash flows from
the continuing use and ultimate disposal of the asset.
Cash Flows:

• From continuing use and disposal
• Based on the asset in its current form
• Excluding financing activities
• Pre-tax Discount Rate
• Pre-tax Either adjust future cash flows or adjust the discount rate for the elements that should be reflected in the calculation of value in use

When to Impair?
Indicator of impairment
Annually

Indicators of Impairment
Internal
External

Internal Indicators

1. Evidence of obsolescence or physical damage
2. Discontinuance, disposal of restructuring plans
3. Declining asset performance

External Indicators

1. Significant decline in market value
2. Changes in technological, market, economic or legal environment
3. Changes in interest rates
4. Low market capitalisation

Annual Impairment Tests
Compulsory for:

• Intangible assets with indefinite useful life
• Intangible assets not yet available for use
• CGU to which goodwill has been allocated

Allocation of impairment (CGU)
Goodwill first
Pro-rata other assets but not below:
(i) FV less costs to sell
(ii) VIU
(iii) Zero

Impairment loss should be charged to P&L unless it relates to a revalued asset, in which case the impairment loss should be offset against the revaluation surplus on the same asset.

When to reverse Impairment?
Internal Indicators
External indicators

Internal Indicators

1. Changes in way asset is used or expected to be used
2. Evidence from internal reporting indicates that economic performance of the asset will be better than expected

External Indicators

1. Significant increase in market value
2. Changes in technological, market, economic or legal environment
3. Changes in interest rates

Individual Asset – recognise in P&L unless asset is carried at revalued amount
CGU – Allocated to assets of CGU on a pro-rata basis
Goodwill – previous impairment losses can never be reversed

Disclosures
An entity should disclose the following for each class of asset:
Impairment losses and reversals recognised in P&L for period
Impairment losses on revalued assets, and reversals, recognised in OCI for the period.

For each reportable segment, disclose:
Events or circumstances that led to the recognition or reversal
Amount of the impairment loss
For an individual asset – it’s nature and reporting segment
whether recoverable amount is FV less costs to sell or VIU
basis to determine VIU (if applicable)
Discount rate used for VIU (if applicable)


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