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ImpairmentMark Fielding-Pritchard
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Impairment IAS 36
Current carrying value
Fair value less selling costs (Net Realisable Value)
Value in Use
Recoverable Amount
Higher of
Lower of
New carrying amount
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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
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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
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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
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Impairment IAS 36
Symington Before 300 400 500 Impairment (10) (170) (0) After 290 230 500
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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
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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.
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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)
Total 230 (90) 140
mefielding.com 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
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Telepath June 2012 bi)
Current carrying value
[800000-[{800000-50000}/5]2
500000
Value in Use
2013 220 x 0.91 200.2
2014 180 x 0.83 149.4
2015 170 x 0.75 127.5
2015 50 x 0.75 37.5
514.6
Value in use is greater than carrying value so no impairment
mefielding.com 12
Telepath June 2012 bii)
Before Adjustment After
Goodwill 1800
Patent 1200 (200)
Building 4000
Plant 3500 (500)
Receivables 1500 0
12000 (5300) 6700
‘Fixed’ adjustments are $700, leaving $4600. Allocate first against goodwill, then against building & plant in proportion 4/3
mefielding.com 13
Telepath June 2012 bii)
Before Adjustment After
Goodwill 1800 (1800) 0
Patent 1200 (200) 1000
Building 4000 (1600) 2400
Plant 3500 (500)(1200) 1800
Receivables 1500 1500
12000 5300 6700
5300- (1800+200+500)= 2800Building 4/7 x 2800= 1600Plant 2800-1600= 1200