Impairment of assets Flashcards
An asset is impaired if
its recoverable amount is below its carrying amount
An asset’s recoverable amount is the higher of its:
fair value less costs to sell
value in use : the present value of cash generated by the asset
Indications of impairment may be either
internal or external.
Internal Indications of impairment
Evidence of obsolescence/damage
Changes in asset use
Asset performance below expectations
External Indications of impairment
Decline in market value
Changes in environment: economic, market, technological or legal
Increased interest rates, reducing value in use
If impaired, an asset should be written down X and the impairment loss should be taken to the X. The only exception to this is where the asset has previously been X, in which case the impairment will first be taken to the X, via other X. Any excess would then be taken to the statement of profit or loss.
its recoverable amount
statement of profit or loss.
revalued
revaluation surplus
comprehensive income
Intangible assets must be checked for impairment on a X basis
Annual
Cash generating units =
Intangibles with indefinite. life and you can’t assess it’s recoverable amount.
is the smallest identifiable group of assets for which independent cashflows are identifiable.
Cash generating units example is =
For example, within a college, independent cashflows are not identifiable for each piece of furniture, or maybe even all the furniture within each classroom, and it is necessary to combine all the assets at a particular location to identify the independent cashflows.
The assets in the CGU are grouped together and their combined value is compared to the total recoverable amount. Impairment exists where
the total carrying amount is greater than the total recoverable amount.
CGU’a - The calculated total impairment needs to be allocated against specific assets. Having impaired any specifically impaired items, assets should be impaired in the following order:
Purchased goodwill
Remaining assets pro-rata based on their carrying amount.
Note that no asset is to be written down below its recoverable amount.
Where there is no indication of impairment then no further action need be taken. An exception to this rule is:
goodwill acquired in a business combination
an intangible asset with an indefinite useful life
an intangible asset not yet available for use.
A reversal of an impairment loss is recognised immediately as income in X. If the original impairment was charged against the revaluation surplus, it is recognised as X and credited to the revaluation surplus.
profit or loss
other comprehensive income
The reversal must not take the value of the asset above its X, i.e. the amount it would have been if the original impairment had never been recorded. The X that would have been charged in the meantime must be taken into account.
depreciated historical cost
depreciation
An impairment loss recognised for goodwill X be reversed in a subsequent period. The reason for this is that once purchased goodwill has become impaired, any subsequent increase in its recoverable amount is likely to be an increase in internally generated goodwill
cannot
