IAS 36 Impairment of Assets

Question 1

What is the frequency and timing of impairment tests?

Answer 1

Either:

Indicated-based impairment testing

and

Annual impairment test

Question 2

What is indicator- based impairment testing?

Answer 2

• An entity shall assess at each reporting date whether there is any indication for impairment.
• Only if an indication for impairment exists, the entity shall estimate the recoverable amount of the asset.

Question 3

What is the annual impairment test?

Answer 3

• additional annual impairment tests are required for all intangibles that are not subsequently amortized.
• the annual impairment test may be performed at any time during the period (consistency required!)
• Different intangible assets may be tested for impairment at different times.

Question 4

Which assets are part of the annual test and test in case of a triggering event and which are not?

Answer 4

• Goodwill: Both yes
• Intangible assets with indefinite useful lives: Both yes
• Intangible Assets under Construction: Both yes
• All other assets in scope of IAS 36: Annual test - No, triggering event - yes

Question 5

What are the two different approaches in IAS 36?

Answer 5

External sources (36.12 a-d) and Internal sources (36.12 e-g)

Question 6

What is the recoverable amount?

Answer 6

the higher of its fair value less cost to sell (IAS 38.28f) and its value in use (IAS 36.30ff).

external value (market value) = Fair Value less cost to sell

internal value (enterprise value) = Value in use

Question 7

When is an Impairment necessary?

Answer 7

Carrying Amount > Recoverable Amount

Question 8

What is the Bottom-up impairment test?

Answer 8

IAS 36.97

1 Step) Examine if any impairment loss can be calculated for the individual asset -> this is only possible if the recoverable amount can be determined

2 Step) If the recoverable amount for an individual asset cannot be determined -> form a CGU (cash generating unit) and test the whole CGU for impairment (this is ALWAYS necessary in case of goodwill)

Question 9

What is a CGU?

Answer 9

(cash inflows or active market)

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.

The assessment of the cash inflows are here based on business areas, locations and regions.

If an active market exists for the output produced by an asset or group of assets, that asset or group of assets shall be identified as a cash-generating unit.

Question 10

What does the carrying amount of a CGU include?

Answer 10

Book value of directly attributable assets + indirectly related assets + attributable goodwill - Liabilities ONLY if inseparably linked.

Question 11

What is the general rule and consequence of the recognition of impairment loss?

Answer 11

General rule:
An impairment loss should be recognized immediately as an expense in the income statement + Goodwill is ALWAYS impaired first!

Consequence:
For assets with a finite useful life the depreciation charge should be adjusted to allocate the revised carrying amount, net of any expected residual value, on a systematic basis over its remaining useful life.

Question 12

Rules for the allocation of impairment losses:

Answer 12

• Goodwill is always impaired first
• it is forbidden that an asset is devalued to less than its individual fair value
• impairment losses are recorded in P&L
• an entity is obliged to reverse impairment losses, if the recoverable amount of a CGU increases in later periods. However, there is absolutely no reversal of Goodwill Impairments.