Translated from Spanish to English -

FACULTY OF BUSINESS

PROFESSIONAL SCHOOL OF ACCOUNTING

Impairment of Assets Nic 36

AUTHOR(S):
Quispe Pilco, Zahid Nahir

ADVISER:
Mr. Marcial Castillo, William Marcial

LINE OF RESEARCH:

Senior Accounting

LIMA PERU
2023

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 INDEX

1. INTRODUCTION.............................................................................................................3

1.1. Background.................................................................................................................4

1.2.Objectives....................................................................................................................6

1.3.purpose.........................................................................................................................6

1.4. Description of the problematic reality..................................................................7

2. DEVELOPMENT..............................................................................................................7

2.1. Introduction to the concept of impairment:........................................................7

2 .2 Deterioration indicators.............................................................................................8

2.3 Measurement of recoverable value..........................................................................9

2.4 discount rates...............................................................................................................10

2.5 Recognition and measurement of loss due to value impairment:..................10

2.6 Cash-generating units................................................................................................11

3. CONCLUSIONS................................................................................................................12

4. REFERENCES……………………………………………………………………….
….13

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 1. INTRODUCTION

The present work is carried out with the purpose of knowing the nic 36 impairment of the
value of assets, this extract establishes the procedure that companies must follow to calculate
the impairment of assets, that is to say, to ensure that their assets are accounted for an amount
that does not exceed its recoverable amount. We have the following values exempt from
impairment of assets, inventories, assets arising from construction contracts, deferred tax
assets, assets from employee benefits, financial assets Investment property, biological assets,
non-current assets held for sale . To determine and identify whether an asset might be
impaired, we would have to have the amount in Books, that is to say, the gross cost as soon
as this asset cost us less accumulated depreciation up to the present, with this the net value of
the asset would be obtained. Therefore, the recoverable value would have to be known, that
value that as a company I can recover having the possibility of selling or using it for an
activity that will generate future benefits, is obtained with the difference between the fair
value as it is available in the market, costs of sales associated with the sale and value in use,
the higher the recoverable amount. In this we compare if the recoverable amount is greater
than the book value then there is no impairment, otherwise if the recoverable amount is less
book value there would be an impairment loss. At least once a year, it should be evaluated if
there are signs of impairment, whether from external sources such as comparability of assets,
interest rates, general returns, and internal sources such as having information that the assets
are no longer having the same performance and are not contributing the same benefits that
incorporate future flows for the company. We have chosen this company since it has been
taken into consideration that this is an illustrative case regarding the subsequent measurement
of impaired assets. Of course, this standard does not fully describe the way to measure assets
when they are impaired, it establishes the criteria to help establish reasonable accounting
policies in companies. general and internal returns such as having information that the assets
are no longer having the same performance and are not providing the same benefits that
incorporate future flows for the company. We have chosen this company since it has been
taken into

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consideration that this is a case illustrative with respect to the subsequent measurement of
impaired assets.

1.1. BACKGROUND

The company Coca Cola Embonor SA, which is located in Spain, presents the financial
statements under international standards, for the period 2010 and 2011. In its financial
statement, when referring to the value of non-current assets, it indicates the way to calculate
the impairment of the asset. . The company calculates the recoverable value of the asset and
value in use, when the recoverable value is below its net book value it is taken as value
impairment. To determine these calculations, the company estimates the profitability of assets
assigned to different units that generate cash in the expected cash flow. At the end of the
periods, no possibilities of making adjustments to the lower value of investments were
detected, since the recoverable value is greater than the book value in each case. (MADIEDO
J., 2011)

The value of non-financial assets and their upcoming deterioration is a fundamental

responsibility; that is why the standard establishes regimes to ensure that your assets are not
overvalued with regard to the amount you wish to recover for their use. The correct
development of the measurement of assets with the regimes established by this standard
make the financial statements look better and these allow users to make better decisions
(GARCIA SUAREZ., 2015)

The author affirms that, in accordance with the most striking changes, just as the principles of
IAS 36 declare that it can be replaced by others, this means that there are currently other
standards that can use the same procedures already mentioned. In addition, IAS 36 It does not
analyze impairment losses on inventories, tax assets, nor assets arising from construction, nor
those originating from providing benefits to workers, nor impairment losses on most of the
assets that are within the scope of accounting (Becerra 2015)

The authors affirm that the objective of this Standard is to regulate and provide the
information so that the different companies, both large, medium or small, must use their
assets for the correct use of accounting for an amount that is not greater than

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their recoverable cost. , In addition, they affirm that the regulation of this standard requires
that entities recognize a loss due to impairment of the real cost of the good (Peña & Catina
2018).

According to what was mentioned by the author, when proceeding with the first observation
of the asset, the same entity is obliged to establish the basis for subsequent measurement,
which is why a model is chosen to measure the asset and the reassessment according to IAS
36. Then, once this has been chosen, it should be accepted as an accounting policy and
should not be used individually, but rather jointly with items of property, plant and
equipment. (Olaya, 2017)

According to Necoechea and Injante (2018) the investigation was carried out that, according
to the Income Tax law, in the recognition in the impairment of asset value it is not accepted
as a deductible expense for the determination of taxable income. The loss will only be
recognized if it is deductible for tax purposes when it is made through its sale or cancellation
precisely accredited. This is also indicated in paragraph 64 of the standard "If an impairment
loss is recognized, the assets and liabilities for deferred taxes related to it will also be
determined, by comparing the revised book value of the asset with its tax base, in accordance
with IAS 12”.

As mentioned by Cajo and Álvarez (2016), they say that the deterioration is based on the
future economic fruit that is contracted with the asset and these are dissolved through its use
or function that is given to it over time. Which does not interrupt the outdated and the
deterioration in a common and natural way produced by the lack of use or the deterioration
that is caused by some exceptions very foreign to the responsibility of the company. In
addition, all this leads to a reduction in the expected benefits of the assets. It is thus that the
impairment of value is the deprivation of the future economic fruits of the assets

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1.2. OBJECTIVES:

GENERAL OBJECTIVE:

The main objective of our research work has been to study and analyze the
use of nic 36 and its incidences in the company TECHNOLOGIES SAC

SPECIFIC OBJECTIVES OF IAS 36:

- Establish procedures so that assets cannot be recorded at a higher value

recoverable.

- Establishes the impairment loss to which it must be reserved.

- The information provided by IAS 36 regarding the value of assets facilitates decision-
making by investors regarding their use.
- IAS 36 will provide the various users of the financial information referring to the
company's assets with more accurate data adjusted to reality and the use that each one
of them has within the production process.

1.3. PURPOSES OF IAS 36

- Provide the steps that must be followed to ensure that the assets are not recorded at
more than the recoverable value.
- It is established when the loss due to impairment must be reversed.
- Establishes the disclosures required for users of the EE FF

Scope

The standard is applied to accounting for the impairment of all assets, it does not apply to
inventories, assets derived from construction contracts, deferred tax assets, as well as assets
that arise from compensation to employees. employees nor to the assets held for sale because
the existing standard applicable to these assets establishes requirements for recognition and
measurement.

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1.4. DESCRIPTION OF THE PROBLEMATIC REALITY:

Globally, entities have different objectives such as financial profitability, assets, etc. In
addition, for more conditions such as: recognition in the item of financial statements,
preference of their measurement bases, etc. For all this, the NICs have as a mission to
regularize and harmonize the accounting standards and the procedures to prepare the
financial statements

For companies with greater financial position, deterioration does not represent a significant
impact on their financial statements, on the other hand, for the most unstable companies it
does; This causes companies, as much as possible, to avoid recognizing impairment in their
assets, so that they may be overvalued; and the standard that regulates this is IAS 36 (Robles,
2016).

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2. DEVELOPMENT

2.1 Introduction to the concept of impairment:

An asset is required as a main element that manages the company's resources, after which it
is expected to lead to future economic benefits. The value of the asset is decided by the
various economic transactions that it undergoes in the market, it is based on the financial
statements, and its value can be modified over time.

The objective of IAS 36 is to detail the various procedures that a company must obtain, in
order to ensure that its assets do not exceed the recoverable value. If the case arises, the asset
must be established as impaired, it is where the norm takes presence in saying that the
company recognizes an impairment loss.

2.2 Indicators of deterioration:

The company will evaluate, on each date the culmination of the balance if there is any
indication of impairment of its assets. If this were to happen and it is discovered that there are
indicators of impairment, said company will have in its hands the estimate of the recoverable
amount of the asset. Said indicators can be described as follows:

EXTERNAL SOURCES:

● Increase in the rate of interest or return.

● The firm's book cost of net assets is greater than its credit capital.
● Processes of changes in technology, legal environment as well as the
existence of economic markets.

INTERNAL SOURCES:

● The return on the asset is not and will not be what was expected.
● Clear wear and tear on the asset physically
● Intermittence, withdrawal or restructuring plans.

2.3 Measurement of recoverable value:

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The sale price is the value at which the asset is available for sale, less the costs incurred to
carry out the sale. Also named as fair value as indicated by the standard (IAS 36, pf 6). In the
event there is no sale agreement, no market for the asset, recent transactions made for similar
assets of the same economic activity would be considered.

The value in use is the amount estimated with the projection of future economic flows that
the asset would generate. This value will be obtained by the recurring use shown to the asset
and the end of its useful life.Elements to take into account to calculate the value in use of the
asset:

.The best estimate of the future cash flows that the entity expects to obtain from the asset.
.The expectations about possible variations of said future cash flows.
.The market interest rate.
.The price considering the uncertainty inherent in the asset
.Other factors (IAS 36, 30).

When having the value in use, the entity must take into account the possible variations in the
amount of economic flows. For this, a risk factor must be obtained, due to the uncertainty
generated by the asset. Any assumption or projection must be made with reasonable values
and with certain foundations.

2.4 Discount rate:

Rates to be used are pre-tax rates that reflect market conditions and the
current value of money and risks for which cash flow estimates have not
been adjusted.

According to what it says in annex a of nic 36, it recommends that the

company take into consideration the sgtes. discount rates :

● The weighted cost of capital

● The incremental interest rate of the loans taken by this entity.
● other market interest rates for loans.

2.5 Recognition and measurement of loss due to value

impairment: Definition of impairment

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It is the estimated loss of value of the asset, where it is no longer possible to recover the full
book value of the asset.

Accounting recognition of impairment

First we must analyze if the book value in the books is greater than the recoverable value,
then the amount found in the books would have to be reduced until it reaches the average
value. This loss may be recognized in the results of the period.

back measurement

Regarding the subsequent measurement of impairment, after the recognition of an

impairment loss, the charges for depreciation of the asset will be adjusted in future periods, in
order to distribute the revised carrying amount of the asset, less its eventual value. residual, in
a systematic way throughout its remaining useful life.

2.6 Cash generating units:

When carrying out the analysis of IAS 36, a cited term is mentioned, which is the asset when
it is referred to individually or it is also called a cash-generating unit and it is basically a
small group of assets that produces cash inflows towards the entity that for the most part are
independent of the cash flows derived from other assets. In addition, these are highlighted
from the goodwill which constitutes the obtaining of future cash flows both in the unit being
considered and in others.

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3. CONCLUSIONS

It can help us measure the impairment of assets and will allow better control of the financial
statements of the entities in order to promote transparency in accounting processes.

Consequently, we will also determine the procedures that each company applies to ensure
that the value of its assets does not exceed fair value.

The standard wants to establish procedures that companies must use to ensure that their assets
are not worth more than what they can recover from them. If the asset's book value exceeds
its recoverable value through use or sale, it is recorded at a value higher than its recoverable
value.

Regarding the practical case that we have analyzed, we have come to understand that the
machine that the company TECHNOLOGIES SAC in these last 4 years of useful life has
come to lose a great valuefor terms of impairment according to the accounting application of
IAS 36; In addition, with the use of this standard, it is possible to expose an overvaluation of
the machinery and thus present its real value legally and thus prevent the company from
presenting accounting errors in its measurement and this will generate future legal problems.

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 REFERENCES:

"Accounting implications of the application of nic 36 in a Peruvian shipping company.

University of Piura"

https://pirhua.udep.edu.pe/bitstream/handle/11042/3718/TSP_CyA_018.pdf?
sequence=1&isAllowed=y

Rubinos W. (2018). "IAS 36 Indicators of impairment" KPMG in Peru

http://www.iimv.org/iimv-wp-1-0/resources/uploads/2015/01/
PresentacionWRNIC36IIMVFinal-1.pdf

Herrera, Y. (May 2, 2023). What is IAS 36 and asset impairment?

nubox.https://blog.nubox.com/contadores/nic-36
Aguilar, O. (2018). "Impairment and asset value and its impact on financial
statements"https://repositorioacademico.upc.edu.pe/bitstream/handle/
10757/629504/Aguilar_OS.pdf?sequence=3

Injante, A. and Necochea, C. (2018). IAS 36 Impairment of assets and its impact on
decision-making in companies in the Textile Sector. Peruvian University of Applied
Sciences.https://repositorioacademico.upc.edu.pe/bitstream/handle/10757/625454/
Injante_AI.pdf?sequence=1&isAllowed=y