in Use

The calculation of value in use should reflect the following elements:

1. a) An estimate of the future cash flows the entity expects to
derive from the asset in an arm's length transaction.
2. b) Expectations about possible variations in the amount or
timing of those future cash flows.
Recognition of an Impairment Loss
● An impairment loss should be recognized whenever recoverable amount is below carrying
amount.
● The impairment loss is an expense in the income statement unless it relates to a revalued
asset where the value changes are recognized directly in equity.
● Adjust depreciation or amortization charges for future periods.
Reversal of an Impairment Loss
● Internal and external indicators of reversal are identified.
 ✓ If a revaluation results in an increase in value, it should be credited to equity under
the heading "revaluation surplus" unless it represents the reversal of a revaluation
decrease of the same asset previously recognized as impairment loss, in which case it
should be recognized as income.
 ✓ The revaluation surplus shall be transferred to retained earnings in one of the
following ways:
Asset is Depreciable
Asset is Non- Depreciable
If Sold
The balance of revaluation surplus
The balance of revaluation surplus
If NOT Sold
Revaluation surplus divided by remaining life
NONE
External sources
Internal sources
✓ If an asset’s carrying amount is decreased as a result of a revaluation (meaning impaired), the
decrease shall be recognized in profit or loss. However, the decrease shall be debited directly to
equity under the heading of revaluation surplus to the extent of any credit balance existing in
the revaluation surplus in respect of that asset.
IMPAIRMENT OF ASSETS
Impairment loss
● Individual asset – the difference of the increased recoverable amount is recognized in profit
and loss unless asset carried at revalued amount.
● CGUs – allocated to assets of CGUs on a pro-rata basis.
● Goodwill – impairment of goodwill is never reversed.
● Limitation – the revised carrying amount after reversal
should not exceed the carrying amount of the individual asset and assets within the cash
generating unit if impairment loss was not recognized.
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1. 2.
SCENARIO #1 “Internal and external indicators” of impairment Items of property plant
and equipment. Intangible assets with
SCENARIO #2 Annual impairment testing
1. Intangible assets with indefinite lives.
2. Intangible assets not
● Is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its
recoverable amount.
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● Significant increase in market
value.
● Changes in way asset is used or expected to
● Changes in technological,
be used.
market, economic or legal
● Evidence from internal reporting indicates
environment.
that economic performance of the asset will be
● Changes in interest rates.
better than expected.
● Market interest rates have
decreased.
MAY