Scribd Logo
Upload

Welcome to Scribd!

  • IAS-36 Impairment of Assets

    Uploaded by

    HunairArshad
    18 views13 pages
    This document discusses IAS 36 Impairment of Assets. It provides guidance on calculating the recoverable amount of assets and cash generating units and recognizing impairment losses. Key points include: - The recoverable amount of an asset is the higher of its fair value less costs to sell or its value in use defined as the present value of future cash flows. - If an asset's carrying amount is greater than its recoverable amount, an impairment loss is recognized for the difference. - For a cash generating unit, if the carrying amount including goodwill exceeds the recoverable amount, the impairment loss is first allocated to goodwill then proportionately to other assets.

    Original Description:

    Copyright

    © © All Rights Reserved

    Available Formats

    PPTX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    This document discusses IAS 36 Impairment of Assets. It provides guidance on calculating the recoverable amount of assets and cash generating units and recognizing impairment losses. Key points include: - The recoverable amount of an asset is the higher of its fair value less costs to sell or its value in use defined as the present value of future cash flows. - If an asset's carrying amount is greater than its recoverable amount, an impairment loss is recognized for the difference. - For a cash generating unit, if the carrying amount including goodwill exceeds the recoverable amount, the impairment loss is first allocated to goodwill then proportionately to other assets.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    18 views13 pages

    IAS-36 Impairment of Assets

    Uploaded by

    HunairArshad
    This document discusses IAS 36 Impairment of Assets. It provides guidance on calculating the recoverable amount of assets and cash generating units and recognizing impairment losses. Key points include: - The recoverable amount of an asset is the higher of its fair value less costs to sell or its value in use defined as the present value of future cash flows. - If an asset's carrying amount is greater than its recoverable amount, an impairment loss is recognized for the difference. - For a cash generating unit, if the carrying amount including goodwill exceeds the recoverable amount, the impairment loss is first allocated to goodwill then proportionately to other assets.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 13

    IAS-36 Impairment of Assets

    (Tangible and Intangible)


    Objective
    Ensures assets are carried at no more than Recoverable amount(RA)
    Defines how to calculate Recoverable amount(RA)
    How to calculate?
    Single Assets
    If Carrying Amount(CA) > Recoverable Amount(RA)
    CA-RA=Impairment Loss(IL)
    10m- 8m =2m
    Carrying amount(CA)=Cost – Accumulated Depreciation – Accumulated
    Impairment loss
    Recoverable Amount(RA)=Higher of Assets Net selling price(NSP) and Its value
    in use(VIU)
    NSP= Fair market value of the asset less cost to sell
    VIU=Present value of future cash flows
    How to calculate(cont…)
    Recoverable(RA)=8m

    NSP=7m Higher of VIU=8m


    When to Perform impairment test
    At each balance sheet date review all assets for any indication that an
    asset may be impaired.
    Indicators
    1-Internal Sources
    Asset is damaged
    Forecast goes wrong
    2-External Sources
    Adverse Economic conditions
    Market value of the asset dropped
    Market interest rate increase
    Company stock prices goes below book value
    Recognition of Impairment loss-Journal Entry
    If asset is carried at cost model
    Profit/loss account(debit) 2m
    Accumulated Impairment loss account(credit) 2m
    If asset is carried at revaluation model
    And let say our asset in above example was revalued upward by 1m
    Revaluation reserve account (debit) 1m
    Profit/loss account(debit) 1m
    Accumulated Impairment loss account(credit) 2m
    Cash generating unit-CGU(group of assets)
    Examples:
    A tour operator: Group of assets will include assets such as busses,
    operating license, Road license
    A Pizza Shop: Group of assets will include assets such as furniture,
    delivery vans, equipment’s
    A mining company: Group of assets will include assets such as railway
    track and train, mining equipment, mining license
    How to calculate?
    If Carrying Amount(CA) of CGU+ Goodwill(GW) > Recoverable
    Amount(RA) CGU
    CA of CGU including goodwill-RA of CGU=Impairment Loss(IL)

    Allocation of the loss will be in following order


    First charge loss to goodwill if any
    Then remaining loss to other assets on pro rata basis(Proportional
    basis)
    Example-CGU Impairment
    CGU
    Goodwill =15m
    Machine A =40m
    Machine B =40m
    CA =95m
    RA =75m
    IL=CA-RA=20m
    Allocation of Impairment loss
    Working:
    Total impairment loss 20m
    Less:
    Allocation to goodwill 15
    Machine A 2.5
    Machine B 2.5 20m
    NIL
    Working-1 Allocation of Remaining
    Impairment loss to other assets-Pro rata basis
    Allocation:
    Machine A(40/80**x5*) 2.5m
    Machine B(40/80**x5*) 2.5m

    *Remaining Impairment loss after allocation to goodwill=20-15=5m


    **Net carrying amount of CGU excluding goodwill
    Machine A=40m
    Machine B=40m
    Recognition of Impairment loss-Journal Entry
    Profit/Loss Account (debit) 20m
    Accumulated Impairment loss Machine-A (Credit) 2.5 m
    Accumulated Impairment loss Machine-B (Credit) 2.5 m
    Goodwill A/c 15m

    You might also like