IAS 36 Impairment Asset

If The Normal Efficiency of assets Is Decreased

Depreciation is charged for wear and tear Day to day Use Economic Value

Purchased a Machine Valued $100,000

UL of Machine is 5 Years

P.A 20,000 it is Depreciated

Normal Capacity of This Machine is It Can Produce 10000 Units P.A

Suddenly the Machine Got Break Down and the Production Capacity Became 7000Units P.A

After 1 Year This Occurrence Happened

CV of This machine is Cost 100,000 Less AD = 80,000$

Recoverable Amount = Ma Benefit We Can Obtain from This Particular Asset = 90,000$

So Assets Should Be Shown in the SOFP as 70,000$

Asset Might Be Sold = Fair value or Market Value

Value in Use

Impairment Test Should Be Carried Out Between

1. CV and
2. Recoverable Amount

The Asset Should Be Shown in The SOFP Is the Lower of CV and Recoverable Amount

When Impairment Loss Arise = CV is Higher Than the Recoverable Amount

CV I.e. 80,000

R A i.e. 70,000

So The Impairment Loss Is 10,000$

Now What Is the Accounting Entry or Journal Entry of Impairment Loss:

Impairment Loss Dr $10,000

NCA. /PPE Cr $10,000

 ❖ RECOVERABLE AMOUNT
Ra Max Benefit We Can Obtain from Either Selling The asset Or from Continuously Using The
Asset :

1. FV Less Cost to Sales 195000

FV of That Machine is 200,000

But Selling Expenses is 5000

2. Value in Use (VIU) NPV of Net Cash Flow (Cash Inflow Less Cash Outflow) From Using That Asset
$210,000
Benefit from Machine or NCA

Discounting = Future Value into Present Value

Compounding = Present into Future Value

Net Cash Flow is:

10000 Y1

15,000 Y2

20,000 Y3

Discounting rate is 10 % or 5 % or 15 %

What is the PV?

10% = $40500

5% = $42750

15% = $38250
 ❖ Cash Generating Unit (CGU)

Cash is Generating in Regular Basis

Restaurant Chain If any Impairment Loss Will Occur in That CGU How we will adjust It?

Difference Between CV and Recoverable Amount

CGU Total Impairment Loss is 200,000$

Allocating/ Allocation of Impairment among CGU

1. If is there any Particular assets got damaged 80,000$

2. Then We Need to adjust from Goodwill 300,00$ But GW Only Impaired 60,000$
So already Adjusted 200,000 less 80,000 For Particular Asset Less for GW impairment $60,000
= Remaining Impairment Loss Need to adjust $60,000

3. Remaining 60,000$ Will be adjusted with the Remaining Asset as per Pro Rata Basis.

Other Asset
Equipment $240,000
Building $150,000
So Total 390,000
For Equipment 60,000/390000 * 240,000 = $36,923
For Building 60,000/390000 * 150,000 = $23076

⮚ Reversal of Impairment Loss (topic Will Cover in Next Class) :