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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

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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

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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

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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