PAS 36 IMPAIRMENT OF ASSETS

I. NATURE
PAS 36 prescribes the procedures necessary to ensure that the assets are not carried
in excess of their recoverable amount
PAS 36 applies in accounting for the impairment of the following assets:
a. Property, plant, and equipment
b. Investment property measured under the cost model
c. Investment in associates, joint ventures and subsidiaries
d. Intangible assets
e. Goodwill
Core Principle:
 If carrying amount is greater than the recoverable amount, the asset is
impaired. The excess is impaired loss.
 If carrying amount is equal or less than recoverable amount, the asset is not
impaired. No accounting problem.

II. RECOGNITION
Impairment loss is recognized immediately in profit or loss, unless the asset is
carried at revalued amount, in which case, revaluation surplus is decreased first and
any excess is recognized in profit or loss.
Decrease in the revaluation surplus is recognized in other comprehensive income.
If the recoverable amount of the previously impaired asset exceeds its carrying amount,
the carrying amount is increased to equal the recoverable amount. The increase is the
reversal of impairment loss.
The reversal of impairment loss is recognized in profit or loss, unless the asset is
carried at revalued amount, in which case, revaluation surplus is increased for the
portion representing a revaluation increase.
The revaluation increase is recognized in other comprehensive income. The portion
that represents a reversal of an amount that was previously recognized in profit or loss
is also recognized in profit or loss.

III. MEASUREMENT
Recoverable amount is the higher of an asset’s FVLCD and VIU.
Fair value less costs of disposal (FVLCD)
 Cost of disposal, except those that have been recognized as liabilities, are
deducted in measuring fair value less costs of disposal.
Value in use (VIU)
 VIU is the present value of the future net cash inflows expected to be derived
from the continuing use of an asset and from its disposal at the end of its useful
life.
 Computed using the ff. steps: (a) Estimate the future cash inflows and outflows
expected to be derived from continuing use of the asset and from its final
disposal and (b) Apply an appropriate discount rate to those future cash flows.
FORMULA:
Recoverable amount (Whichever is higher of FVLCD and VIU)
Less: Carrying amount (Asset less accumulated depreciation/amortization)
Impairment loss

IV. TRANSACTION

 Cash-Generating Unit (CGU) may be a retail store of a fast food chain, a book
store of a school, a convenient store of a gasoline station, a supermarket of a
mall, a product line, etc. These examples generate cash flows that are
independent from the cash flows of the entity as a whole.