(IAS 36)

Presented by :- R. Charan Teja, I M.Fin.

SCOPE OF IAS 36
Applies to: land buildings machinery and equipment investment property carried at cost intangible assets goodwill investments in subsidiaries, associates, and joint

ventures carried at cost assets carried at revalued amounts under IAS 16 and IAS 38

WHAT IS IMPAIRMENT?
IMPAIRMENT:-

An asset is impaired when its carrying amount exceeds its recoverable amount. IMPAIRMENT LOSS:- An impairment loss is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.

 Carrying amount is the amount at which an asset is

recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses. Recoverable Amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. Fair value less costs to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arms length trans action between knowledgeable, willing parties, less the costs of disposal. Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.

INDICATORS OF IMPAIRMENT
External sources:
market value declines negative changes in technology, markets, economy, or laws increases in market interest rates company stock price is below book value

Internal sources:

obsolescence or physical damage asset is part of a restructuring or held for disposal

worse economic performance than expected

These lists are not exhaustive.

The recoverable amounts of certain intangible assets should be measured annually whether there is indication of impairment or not: intangible asset with an indefinite useful life intangible asset not yet available for use goodwill acquired in a business combination

DETERMINING RECOVERABLE AMOUNT

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.

FAIR VALUE LESS COSTS TO SELL

A binding sale agreement
An active market for that type of asset. If, no active market, use the best estimate of the asset's

selling price. Costs of disposal are the direct added costs only.

VALUE IN USE
Calculation should reflect the following: an estimate of future cash flows expectations about possible variations the time value of money the price for bearing uncertainty other factors

CASH GENERATING UNIT

Recoverable Amount is estimated for an individual

asset. If not possible to estimate the RA of individual asset, determine the RA of the CGU to which the asset belongs.

CASH GENERATING UNIT is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.

IMPAIRMENT OF CGU
Goodwill must be allocated to each CGU or groups of

CGUs. The impairment loss is allocated to: first, reduce the carrying amount of any goodwill allocated to the CGU; and then, reduce the carrying amounts of the other assets of the unit on pro-rata basis.

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.

PROCESS OF IMPAIRMENT TESTING

REFERENCES
Accounting Standards and Corporate Accounting

Practices Dr. T.P.Ghosh. International Financial Reporting Standards Hennie Van Greuning. www.ey.com www.ifrs.org www.iasplus.com

THANK YOU

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