CORPORATE

REPORTING

MFRS136 – Impairment
of assets
Dayana Mastura, FCCA(UK), CA(M)
Learning Outcomes
Identify Explain Explain Discuss Discuss
Identify an asset Explain the Explain the Discuss the Discuss the
that may be different recognition of an reversal of an disclosure for
impaired measurements of impairment loss impairment loss impairment
he recoverable
amount
MFRS136 is not applicable in
the following situations:

MFRS15- Revenue
MFRS102 – MFRS 112 – MFRS119 – MFRS9 –Financial
from Contracts with
Inventories Income Taxes Employee Benefits Instruments
Customers

MFRS5 – Non-
MFRS140 – MFRS141 – MFRS4 – Insurance
Current Assets Held
Investment Property Agriculture Contracts
for Sale
MFRS136 MFRS127 – Consolidated and
Separate Financial Statements
applies to
the MFRS128 – Investments in
Associates
following
financial MFRS131 – Interests in Joint
assets: Ventures
 Determine Determine if an asset impaired

The main Measure Measure recoverable amount

accounting
issues to Determine Determine the impairment loss

consider are:
Prepare Prepare the accounting for impairment in accounts
 1 2
An asset may be impaired due to Impairment may be due to
many reasons changes in the market value or
obsolescence
3 4
All assets should be reviewed at There are elements of external
the end of each reporting period and internal sources that
for any indication of impairment determines whether assets needs
to be impaired or not

Indications of
Impairment
 Significant decline in the market value of the asset during the year

External Significant adverse change in technological, market, economic or

legal environments in which the entity operates or the market to
which an asset is attached (e.g significant and prolonged oil price

sources of
reduction in the oil and gas industry)

Increases in the market interest rates which are most likely to

decrease the asset’s recoverable amount (e.g reduce the discounted

Impairment
cash flow valuation of the asset)

Carrying amount of an entity’s net assets axceeds its market

capitalisation
 There is evidence of obsolescence or physical
damage to an asset (e.g office building damaged
in a flood)

Internal sources Current or future adverse changes in th extent to

which an asset is used or expected to be used (e.g

of Impairment
school building used as a public library)

Worse than expected economic performance of

an asset (e.g machine in a factory not able to
produce up to its production capacity or expected
production volumes)
Is there an
indication that Then the RECOVERABLE AMOUNT needs

an asset may
to be identified

be impaired?
Is there any
evidence of
impairment?

The need to identify whether the

CARRYING AMOUNT is MORE
than the RECOVERABLE AMOUNT
The Impairment Review
Process

When there is some

If yes, the carrying
evidence that an asset However, if the
Comparing the carrying amount needs to be
The assets are carried at may be impaired, need to recoverable amount
amount and the reduced to its recoverable
no more than their identify whether the exceeds the carrying
recoverable amount for a amount and an
recoverable amount carrying amount is more amount, no impairment
particular asset impairment loss is
than its recoverable write-down is necessary
recognized
amount
The Impairment Review Process
Carrying The amount at which the asset is stated in the
Statement of Financial Position after reducing its
accumulated depreciation and accumulated

Amount /
impairment (if any) accordingly

Net Book On paper / within the accounting records as

opposed to the real value in the market-place

Value based on current circumstances

 The concept essentially focuses on the greatest value that
can be obtained from an asset, either by selling or using it

The objective of MFRS136 is to ensure that assets are

carried at no more than their recoverable amount

Recoverable
Amount In reality based on current circumstances, not on paper /
accounting records

Defined as the greater of FAIR VALUE LESS COSTS TO

SELL (FVLCTS) and the VALUE IN USE (VIU)
 Amount receivable
from the sale of the
Fair Value Less assets
Costs To Sell
(FVLCTS) Less the costs of
disposal
Example of FVLTCS

If a machine that is subject

to impairment testing has a
The FVLCTS is RM
fair value or market value of
500,000 – RM 20,000 = RM
RM 500,000 and the
480,000
estimated disposal cost of
RM 20,000.
Value in Use (VIU)

The cash flows are The cash flows are

Present value of the derived from the derived from the
future cash flows usage of an asset in disposal of the asset
from the asset the normal course of at the end of the
business useful life
 Cash flow projection – estimate of future cash
flow that the company expects to derive from the
particular asset excluding cash flow from

Identification financing and income tax payment

of Value in Use
(VIU) Discount rate – pre-tax rate which reflects the
current market assessments of the time value of
money and the risks associated with the asset
 Impairment Loss = Carrying
Amount > Recoverable
How to Amount
determine if
there is any No Impairment Write-Down
Impairment? necessary= Recoverable
Amount > Carrying Amount
Cash-Generating Unit (CGU)
The norm is that impairment testing needs to be done to a particular group of assets instead of a single asset, as most of a
company’s operations depend on a few types or numbers of assets.

A cash-generating unit (CGU) is usually the smallest identifiable group of assets that generate cash inflows that are largely
INDEPENDENT of the cash inflows from other assets or group of assets.

For example, it is not possible to determine the cash inflows for the individual assets of a production line made up of many
different machines, even where the fair value less costs to sell off (FVLCTS) some of the individual machines is known because
the function of those machines is generic to a number of manufacturing processes. The value in use (VIU) of the machines in a
production line (the Cash Generating Unit – CGU) must therefore be determined as a whole.
 At the end of each reporting period, assess whether
there is any indication that a particular asset may be
impaired

Recognizing If there exists some indication of impairment, the

entity needs to estimate the recoverable amount of the
an asset.

Impairment An impairment loss is recognized when the

recoverable of an asset is less than its carrying amount.
Loss
Hence, the impairment loss is charged in the Statement
of Profit or Loss while recognizing it as an expense
 If the fair value exceeds the carrying
amount of the asset in the financial
No statements;

Impairment
Write-down
or Loss Then it is not necessary to have the
impairment write-down
 If fair value less costs to sell
Impairment (FVLCTS) is less than the carrying
amount in the financial statement
Write-down
for Tangible It is necessary to calculate the asset’s
Assets Value in Use (VIU)
Reversal of an Impairment Loss

An entity is required to
The reversal of an
assess assets at the end of
If that happens, the asset’s impairment loss is
each reporting period for
recoverable amount should recognized in the profit or
evidence than an impairment
be identified and computed. loss, unless it relates to a
loss may have declined or
revalued asset.
decreased.
 According to MFRS136, an entity should
disclose the following for each class of assets:

• The amount of impairment losses recognized in profit or

loss during the period, and the line item(s) of the SOCI in
which those impairment losses are included
Disclosure • The amount of reversals of impairment losses recognized in
profit and loss during the period, and line item(s) of the
Requirements SOCI in which those impairment losses are reversed.
• The amount of impairment losses on revalued assets
recognized in other comprehensive income during the
period
• The amount of reversals of impairment losses on revalued
assets recognized in other comprehensive income during the
period.
Thank You