To ensure that assets are carried at no more than their recoverable amount, and to define how recoverable amount is determined. IAS 36 applies to all assets except: [IAS 36.2]
Therefore, IAS 36 applies to (among other assets):
Impairment loss: the amount by which the carrying amount of an asset or cash-generating unit exceeds its recoverable amount Carrying amount: the amount at which an asset is recognised in the balance sheet after deducting accumulated depreciation and accumulated impairment losses Recoverable amount: the higher of an asset's fair value less costs of disposal* (sometimes called net selling price) and its value in use * Prior to consequential amendments made by IFRS 13 Fair Value Measurement, this was referred to as 'fair value less costs to sell'. Fair value: the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (see IFRS 13 Fair Value Measurement) Value in use: the present value of the future cash flows expected to be derived from an asset or cash-generating unit At the end of each reporting period, an entity is required to assess whether there is any indication that an asset may be impaired (i.e. its carrying amount may be higher than its recoverable amount). IAS 36 has a list of external and internal indicators of impairment. If there is an indication that an asset may be impaired, then the asset's recoverable amount must be calculated. [IAS 36.9] The recoverable amounts of the following types of intangible assets are measured annually whether or not there is any indication that it may be impaired. In some cases, the most recent detailed calculation of recoverable amount made in a preceding period may be used in the impairment test for that asset in the current period: [IAS 36.10]
External sources:
These lists are not intended to be exhaustive. [IAS 36.13] Further, an indication that an asset may be impaired may indicate that the asset's useful life, depreciation method, or residual value may need to be reviewed and adjusted. [IAS 36.17]
The calculation of value in use should reflect the following elements: [IAS 36.30]
Cash flow projections should be based on reasonable and supportable assumptions, the most recent budgets and forecasts, and extrapolation for periods beyond budgeted projections. [IAS 36.33] IAS 36 presumes that budgets and forecasts should not go beyond five years; for periods after five years, extrapolate from the earlier budgets. [IAS 36.35] Management should assess the reasonableness of its assumptions by examining the causes of differences between past cash flow projections and actual cash flows. [IAS 36.34] Cash flow projections should relate to the asset in its current condition – future restructurings to which the entity is not committed and expenditures to improve or enhance the asset's performance should not be anticipated. [IAS 36.44] Estimates of future cash flows should not include cash inflows or outflows from financing activities, or income tax receipts or payments. [IAS 36.50] In measuring value in use, the discount rate used should be the pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the asset. [IAS 36.55] The discount rate should not reflect risks for which future cash flows have been adjusted and should equal the rate of return that investors would require if they were to choose an investment that would generate cash flows equivalent to those expected from the asset. [IAS 36.56] For impairment of an individual asset or portfolio of assets, the discount rate is the rate the entity would pay in a current market transaction to borrow money to buy that specific asset or portfolio. If a market-determined asset-specific rate is not available, a surrogate must be used that reflects the time value of money over the asset's life as well as country risk, currency risk, price risk, and cash flow risk. The following would normally be considered: [IAS 36.57]
Recoverable amount should be determined for the individual asset, if possible. [IAS 36.66] If it is not possible to determine the recoverable amount (i.e. the higher of fair value less costs of disposal and value in use) for the individual asset, then determine recoverable amount for the asset's cash-generating unit (CGU). [IAS 36.66] The CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. [IAS 36.6] Goodwill should be tested for impairment annually. [IAS 36.96] To test for impairment, goodwill must be allocated to each of the acquirer's cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated shall: [IAS 36.80]
A cash-generating unit to which goodwill has been allocated shall be tested for impairment at least annually by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit: [IAS 36.90]
The impairment loss is allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order: [IAS 36.104]
The carrying amount of an asset should not be reduced below the highest of: [IAS 36.105]
If the preceding rule is applied, further allocation of the impairment loss is made pro rata to the other assets of the unit (group of units).
Disclosure by class of assets: [IAS 36.126]
Disclosure by reportable segment: [IAS 36.129]
Other disclosures: If an individual impairment loss (reversal) is material disclose: [IAS 36.130]
* Amendments introduced by Recoverable Amount Disclosures for Non-Financial Assets, effective for annual periods beginning on or after 1 January 2014. If impairment losses recognised (reversed) are material in aggregate to the financial statements as a whole, disclose: [IAS 36.131]
Disclose detailed information about the estimates used to measure recoverable amounts of cash generating units containing goodwill or intangible assets with indefinite useful lives. [IAS 36.134-35] |