PAS 36 - Impairment of Assets - Change in operation

Scope When to Test for Impairment

1. Ensure that assets are carried at no more than their
recoverable amount
2. Define how the recoverable amount is determined
⚫ If carrying amount > recoverable amount, the asset is
impaired.
⚫ If carrying amount =/< recoverable amount, the asset is not
impaired (there is no such thing as impairment gain)
Carrying Amount - amount at which an asset is recognized
after deducting accumulated depreciation, amortization and
accumulated impairment loss
Recoverable Amount - the amount expected to be recovered
from the sale or use of an asset. It is the fair value less cost of
disposal or value in use, whichever is higher
The following are require to be tested for impairment at least
annually even if there is no indication for impairment:
1. Intangibles with definite useful life
2. Intangibles not yet available for use
3. Goodwill acquired in combination
Measurement Recoverable Amount
1. Fair Value less Cost of Disposal (FVLCD)
- Fair Market Value less Cost of Disposal
2. Value in Use (VIU)
- Discounted Cash Flow

Impairment of Assets is:

- Only applicable to non-cash and non-current assets
- Degradation of value (if hindi na gumana/ is no longer of use)

PAS 36 does not apply to;

Cash Generating Unit
➢ Inventories
- Smallest identifiable group of assets that generate cash
➢ Financial Assets
➢ Deferred Tax inflows from continuing use that are largely independent of the
➢ Employee Benefits cash inflows from other assets or group of assets.
➢ Assets under PFRS 15 (Revenue from contracts with - Segment of business that generates revenue and cash inflows
customers) independently. (e.g, stationary store of school, supermarket of
➢ Investment property at FV
a mall)
➢ Agriculture
➢ Insurance Contracts
➢ Non-current assets held for sale Reversal of Impairment Loss

PAS 36 applies to:

➢ Land, Building, Machinery - PPE
➢ Invesment property at cost
➢ Intangible Assets
➢ Goodwill
➢ Investment in subsidiaries, associates, JV at cost
➢ Assets at revalued amount

What to Assess for Impairment

◆ An entity assesses at the end of each reporting period
whether there is an indication that an asset may be
impaired.
◆ Indications of Impairment
a. External Factors (can’t control)
- Decline in the asset’s market value
- Change in technological, market economic, or legal
environment (e.g; Jeepney Phase-out - E-jeep Transition)

b. Internal Factors (can control)

- Overuse of an asset/ Physical damage to asset