Impairment Flashcards
What is the objective
To prescribe the procedures to ensure assets are carried at no more than their carrying amounts
What are external indicators of impairment?
Observable indications
Pestel factors
Increase in discount rate
What are internal indicators of impairment
Physical damage or obsolescence
Significant changes to how the asset is being used
Poor economic performance
When is an asset impaired?
When an assets carrying amount exceeds the amount to be recover d through use or sale of the asset
What is the recoverable amount
The higher of an assets fair value less costs to sell and its value in use
What is value in use
Present value of the estimated future cash flows
Base projections on reasonable and supportable assumptions and most recent financial budgets
How is impairment loss accounted for?
The asset wrote down is expensed in the statement of profit or loss as an impairment loss
Debit impairment to the revaluation reserve to the extent of any credit balance previously existing
Then any excess recognised as and expense
Subsequent depreciation charges should be based on the revised CA
How should a CGU impairment be accounted for
include CA of assets only directly attributable to the CGU and which will generate future income
Exclude CA of CGU’s liabilities
What is goodwill
The excess purchase price over the financial value of the identifiable assets
Corporate assets
Assets other than goodwill that contribute to the future cash flows of both the CGU and other CGUs
How is impairment for CGU’s allocated?
Firstly against any goodwill
Next the other assets in proportion to their CA
CA of an asset should not be reduce below the highest of assets fair value less cost of disposal masses value in use
Zero
If above applie the remainder is allocated pro rata amongst other assets
How should depreciation be changed
After recognition, the depreciation charge for the asset shall be adjusted to the revised carrying amount and depreciated on a systematic basis over its useful life
Reversal of impairment
Companies must look at the end of each period to see whether impairment has decreased
Goodwill cannot be reinstated
CA is increased to the recoverable amount - any excess is treated as a revaluation
Allocated pro rata
How should impairment be disclosed
Amount of impairment loss
Amount of loss on revalued assets
Events and circumstances leading to impairment
Nature of the imputed asset
Ra and whether it’s based on fair value less cost to sell or value in use
If fv- information about how the fair value was determined
If value in use the discount rate used
