Umar Saeed ACCA, M.

COM

IAS 36
Impairment of Assets
Impairment:
An asset is impaired when its carrying amount exceeds its recoverable amount

Recoverable amount:
The higher of an asset's fair value less costs to sell (sometimes called net selling price) and its
value in use

Fair value:
The amount obtainable from the sale of an asset in an arm's length transaction between
knowledgeable, willing parties.

Value in use:
The discounted present value of the future cash flows expected to arise from:
 The continuing use of an asset, and from
 Its disposal at the end of its useful life

Cash Generating Units:

When an asset’s recoverable amount cannot be calculated unless grouped with others, they
becomes CGU. Their impairment should be calculated on CGU basis.

Impairment loss: Carrying Amount > Recoverable Amount

HIGHER OFF:

F.V less cost to sell Value in Use

If purchaser is
confirmed, that deal P.V of all future cash
price will be F.V less cost flows from:
to sell  Use
 Disposal
 Exclude any capital
expense or its
revenue

INDICATORS OF IMPAIRMENT

External sources:
o Market value declines
o Negative changes in technology, markets, economy, or laws
 Umar Saeed ACCA, M.COM

o Increases in market interest rates

o Company stock price is below book value

Internal sources:
o Obsolescence or physical damage
o Asset is part of a restructuring or held for disposal
o Worse economic performance than expected

ANNUAL TESTING
 Goodwill
 Goodwill of CGU may cause overall CGU annual testing
 Intangible asset with Indefinite life
 Intangible asset under development

RECOGNITION OF IMPAIRMENT LOSS

 Cost Model – PnL
 Revaluation Model – Rev. Res then PnL

IMPAIRMENT SEQUENCE
1. Goodwill
2. If it’s a CGU and have inventory then apply IAS 2 first
3. Obviously impaired Asset
4. Pro rata basis amongst remaining

REVERSAL OF IMPAIRMENT
Any reversal should not:
 Exceed previously charged impairment loss
 Led to asset being carried above than depreciated historical cost

AUDIT PROCEDURES
 Review impairment reviews processed
 Compare cash flow projects to recent budgets and projections approved by board.
 Review calculation of recoverable amount – higher of NRV or value in use.
 Review and evaluate basis of value in use
 Review F/S to ensure write down has been carried out correctly and disclosures made in
line with ISA 36.
 Consider use of experts for valuations