1. 5-1 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Accounting issues The objective of IAS 36 Impairment of assets is to set rules to ensure that the assets of an enterprise are carried at no more than their recoverable amount (i.e. value to the business). An asset is impaired it its recoverable amount is below the value currently shown on the statement of financial position.

2. 5-2 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Accounting issues The recoverable amount is taken as the greater of net sell price and value in use. This is because there are two ways that the business can get value form the asset, selling it or using it. Value in use is calculated as the present value of the cash flows relating to the asset.

3. 5-3 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Accounting issues An impairment loss, being the carrying amount of an asset its recoverable amount, is recognized immediately in I/S. If the asset is revalued in accordance with another standard, the impairment loss is treated as a revaluation decrease in accordance with that other standard.

4. 5-4 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Indications of impairment The first step in applying IAS 36 is that at each reporting date, an enterprise should assess whether there are any indications that the value of an asset may be impaired. You should think about any external or internal factors that would affect either the selling price of the asset or the value that we can get out of it through using it.

5. 5-5 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Indications of impairment In addition, the recoverable amount of the following asset is measured annually: An intangible asset with an indefinite useful life goodwill

6. 5-6 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets External sources of information The asset’s market value has declined more than expected. Changes in the technological, market, economic or legal environment have had an adverse effect on the enterprise Interest rates have changed, thus increasing the discount rate used in calculating the asset’s value in use.

7. 5-7 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Internal sources of information There is evidence of obsolescence or damage of the asset. Change in the way the asset is used have occurred or are imminent. Evidence is available form internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.

8. 5-8 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Recognition and measurement of an impairment If there is no indication of impairment then no further action need be taken. If there is an indication of impairment, the recoverable amount should e calculated and any impairment loss should be immediately recognized in the income statement. The only exception to this is if the impairment reverses a precious gain taken to the revaluation reserve in which case the impairment will be taken first to the revaluation reserve until the revaluation gain is reversed and then to the income statement.

9. 5-9 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Cash-generating units (CGUS) It may not be possible to estimate the recoverable amount of an individual asset because it is part of a larger group of assets which together from a cash generating unit. In that case it will be necessary to determine whether there has been an impairment in the recoverable amount of the whole cash- generating unit. A CGU is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or group of assets.

10. 5-10 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Writing down a CGU Goodwill is by definition not a separable asset and therefore should be allocated on acquisition to the CGUs expected to benefit. If a CGU is impaired the assets must be written down in a strict order: 1. Specific assets that are know to be impaired. 2. Goodwill allocated to the CGU. 3. Other assets (pro-rata according to carrying value).

11. 5-11 Topic 1 Tangible Non-current Assets IAS 36 Impairment of Assets Reversal of pervious impairment losses Where events turn out to be better than earlier predicted and the recoverable amount increases as a result of improved economic conditions then the precious write-down should be reversed. However the reversal must not take the value of the asset above the original depreciable amount.