Relevant

Relevant Standards
Standards

• PAS 16 – Property, Plant and

Equipment
• PAS 36 – Impairment of Assets
Accounting
Accounting for
for
Revaluation
Revaluation
Property,
Property, Plant
Plant and
and Equip.
Equip. --
Subsequent
Subsequent Measurement
Measurement
• Cost Model. The asset is carried at its
cost less any accumulated depreciation
and any accumulated impairment losses.

• Revaluation Model. The asset is

carried at a revalued amount, being its
fair value at the date of the revaluation
less any subsequent accumulated
depreciation and subsequent
accumulated impairment losses.
Revaluation
Revaluation Model
Model
• Revaluations should be carried out
regularly (3 to 5 years)

• The CA of an asset should not differ

materially from its FV at the end of the
period

• If an item is revalued, the entire class of

assets to which that asset belongs should
be revalued

• Not permitted for SMEs

Revaluation
Revaluation Increase
Increase
(FV
(FV >
> CA)
CA)
Not previously impaired:

• Recognized in OCI and accumulated

in equity under the heading of
revaluation surplus

Previously impaired:

• Reversal of impairment loss

recognized in P/L
• Excess recognized in OCI
Revaluation
Revaluation Decrease
Decrease
(FV
(FV <
< CA)
CA)
Not previously revalued:
• Recognized in P/L as revaluation
loss

Previously revalued:
• Recognized in OCI to the extent of
any credit balance existing in the
revaluation surplus in respect of that
asset
• Excess recognized in P/L
Realization
Realization of
of Surplus
Surplus

Non-depreciable
Through disposal

Depreciable
Through depreciation and disposal
Realized
Realized Surplus
Surplus
• May be transferred directly to
retained earnings, or

• It may be left in equity under the

heading revaluation surplus.

• The transfer to retained earnings

should not be made through through
profit or loss.
Accounting
Accounting for
for
Impairment
Impairment
When
When is
is an
an asset
asset impaired?
impaired?
An asset is impaired when:

CA > RA
Key
Key Definitions
Definitions
Carrying amount - the amount at which an asset is
recognized in the SFP after deducting
accumulated depreciation and accumulated
impairment losses

Recoverable amount - The higher of an asset's fair

value less costs to sell and its value in use.

Fair value - The amount obtainable from the sale of an

asset in a bargained transaction between
knowledgeable, willing parties.

Value in use - The discounted present value of

estimated future cash flows expected to arise
from:
- the continuing use of an asset, and from
- its disposal at the end of its useful life.
Mental
Mental exercise
exercise
CA > FV – CTS
CA < VIU

Is the asset impaired?

NO
Determining
Determining RA
RA
• If fair value less costs to sell or value in
use is more than carrying amount, it is not
necessary to calculate the other amount.
The asset is not impaired.

• If fair value less costs to sell cannot be

determined, then recoverable amount is
value in use.

• For assets to be disposed of, recoverable

amount is fair value less costs to sell.
FV
FV less
less costs
costs to
to sell
sell
• If there is a binding sale agreement, use
the price under that agreement less costs
of disposal.
• If there is an active market for that type of
asset, use market price less costs of
disposal. Market price means current bid
price if available, otherwise the price in
the most recent transaction.
• If there is no active market, use the best
estimate of the asset's selling price less
costs of disposal.
• Costs of disposal are the direct added
costs only (not existing costs or
overhead).
Recognition
Recognition of
of Impairment
Impairment
Loss
Loss
• An impairment loss should be
recognized whenever recoverable
amount is below carrying amount.

• The impairment loss is an expense

profit or loss (unless it relates to a
revalued asset where the value
changes are recognized in OCI).

• Adjust depreciation for future

periods.
Cash
Cash Generating
Generating Unit
Unit
The cash generating unit (CGU) is
the smallest identifiable group
of assets:
• that generates cash inflows
from continuing use, and
• that are largely independent of
the cash inflows from other
assets.
Impairment
Impairment Loss
Loss Allocation
Allocation
The impairment loss is allocated to
reduce the carrying amount of the
assets of the unit in the following
order:
• first, reduce the carrying amount of
any goodwill allocated to the cash-
generating unit; and
• then, reduce the carrying amounts of
the other assets of the unit pro rata
on the basis of the carrying amount
of each asset in the unit.
Impairment
Impairment Loss
Loss Allocation
Allocation
The carrying amount of an asset should
not be reduced below the highest of:
• its fair value less costs to sell (if
determinable);
• its value in use (if determinable);
and
• zero.

If the preceding rule is applied, further

allocation of the impairment loss is
made pro rata to the other assets of
the unit.
Reversal
Reversal of
of Impairment
Impairment
Loss
Loss
• Assess at the end of each period whether
there is an indication that an impairment
loss may have decreased. If so, calculate
recoverable amount.
• No reversal for unwinding of discount.
• The increased carrying amount due to
reversal should not be more than what the
depreciated historical cost would have
been if the impairment had not been
recognized.
• Reversal of an impairment loss is
recognized as income in profit or loss.
• Adjust depreciation for future periods.
-Let us answer MQC-
-Answers
-Answers to
to STD-
STD-
1. A
2. A
3. C
4. D
5. B
6. B