ACCT312 FINAL Impairment

ACCT 312
NZ IAS 36, 40
Impairment,
Investment properties
Rob Vosslamber
rob.vosslamber@canterbury.ac.nz
1
Readings
•NZ IAS 36, 40

•Deegan (2020) ch. 6
2
Menu
I. Impairment of assets NZ IAS 36

II. Impairment test process for an individual asset
III. CGUs
IV. Recognise impairment loss for a CGU
V. Reversal of impairment loss – individual asset
a. Worked examples
VI. Impairment disclosures
VII. Investment properties
3
I. Impairment of assets: NZ IAS 36
Depreciation / amortisation is a process of allocation. It

involves judgements and estimates (useful life, residual
value, pattern of benefits), but it does not address the
recoverability of the asset.
This allocation process assumes that there are no

significant reductions in the anticipated economic
benefits associated with the asset.
4
Refresher
Cost model
Dr Fixed asset AAAA

Cr Cash AAAA
(Purchase of asset, recorded at cost)
Dr Depreciation NN
Cr Accumulated depreciation NN
(Depreciation – either DV or CP)
5
Example
Rob’s House Limited
Cost of blg $500,000

Life 100 years
Rob's House Limited
Straight line depreciation
Year Cost Dep'n Acc Closing
1% CP Depn CA
2011 500,000 5,000 5,000 495,000
2012 500,000 5,000 10,000 490,000
2013 500,000 5,000 15,000 485,000
2014 500,000 5,000 20,000 480,000
2015 500,000 5,000 25,000 475,000
2016 500,000 5,000 30,000 470,000
2017 500,000 5,000 35,000 465,000
2018 500,000 5,000 40,000 460,000
2019 500,000 5,000 45,000 455,000
2020 500,000 5,000 50,000 450,000
6
Revaluation model
To revalue asset:
Dr Depreciation expense NN
Cr Accumulated deprecation NN
(To record depreciation to date of revaluation)
Dr Accumulated depreciation XX
Cr Cost of asset XX
(To reverse Acc. Depn)
Dr Cost of asset BBB

Cr Revaluation reserve (equity) BBB
Cr Deferred tax liability
(To revalue asset)
Subsequently
Dr Depreciation expense YY
Cr Accumulated depreciation YY
(based on revalued amount and remaining useful life)
See worked example 6.1 (p. 207)
7
Example
Rob’s House Limited
Cost: of Blg $500,000
House Rob's House Limited
revalued: Year Cost Revaluation Dep'n Acc Closing

1% CP Depn CA
EOY 2014 2011 500,000 5,000 5,000 495,000
EOY 2019 2012 500,000 5,000 10,000 490,000
2013 500,000 5,000 15,000 485,000
2014 500,000 600,000 5,000 20,000 600,000
2015 500,000 600,000 6,000 26,000 594,000
2016 500,000 600,000 6,000 32,000 588,000
2017 500,000 600,000 6,000 38,000 582,000
2018 500,000 600,000 6,000 44,000 576,000
2019 500,000 550,000 6,000 50,000 550,000
2020 500,000 400,000 5,500 55,500 400,000
(Assume remaining expected life reassessed at 100 years at each revaluation)
8
The economic benefits embodied in an asset might be
reduced, and such reductions are likely to affect the entity’s
ability to generate future cash flows.
If this is the case, impairment testing is warranted.
e.g. effect of:

Natural disasters
New H&S standards
Damage to the asset
Obsolescence
Demand
See NZ IAS 36, para. 1.
9
10
The impairment review asks:
Can the carrying amount of an asset be recovered from

future use and/or disposal of the asset?
(NZ IAS 36, para. 1)
Definition of Impairment Loss:
“… the amount by which the carrying amount of an

asset or a cash-generating unit exceeds its recoverable
amount.”
The objective is to ensure that an asset is carried at no

more than its recoverable amount.
11
I a. Which assets?
NZ IAS 36 generally applies to:
• Tier 1 and 2 for-profit entities;
• all assets except (scope limitations):
a. Inventories (carried at lower of cost and net realisable

value) NZ IAS 2
b. Assets arising from construction contracts NZ IAS 11
c. Deferred tax assets NZ IAS 12
d. Assets arising from employee benefits NZ IAS 19
e. Financial assets NZ IAS 39
f. Investment property measured at fair value NZ IAS 40
g. Biological assets NZ IAS 41
h. Deferred acquisition costs, and intangible assets, arising
from an insurer’s contractual rights NZ IFRS 4
i. Non-current assets (or disposal groups) classified as held
for sale in accordance with NZ IFRS 5
12
I b. When do we test for impairment?
Impairment must be assessed at the end of each reporting period.
It is not necessary to test each asset every year to see if it is

impaired.
Generally, the only assets that need to be tested for impairment

are those where there is any indication that the asset may be
impaired. If there is no such evidence, then an entity can assume
that impairment has not occurred.
If indicated, then test for impairment.
(see NZ IAS 36, para. 9 – 12)
13
Annual impairment tests are required for:
• Intangible assets with indefinite useful lives (no

amortisation);
• Intangible assets not yet available for use (R&D);
• Goodwill acquired in a business combination.
Because the above intangibles are not amortised, a greater

reliance is placed on the impairment process.
If one of these intangible assets is initially recognised in the

current year, it has to be tested before the end of the year
14
1c. How do we identify impairment?
Sources of evidence
Management should take into account the nature and use of

a specific asset and determine the factors that may indicate
deterioration in the asset’s worth.
The minimum indicators listed in NZ IAS 36 are described

in two groups:
•external sources of information, and
•internal sources of information.
15
External sources of information
•Duringthe period, an asset’s market

value declined significantly more than expected.
•Significant changes in the environment/market.
•Market interest rates have increased.
•Thecarrying amount of the net assets is greater than the

market capitalisation of the entity.
16
Internal sources of information
•Obsolescence or physical damage.
•Significantadverse changes on the entity which

negatively affect the use / intended use of asset.
•Evidencefrom reporting that the economic

performance of an asset is worse than expected.
17
Individual asset vs. CGU
Individual asset
If there is any indication that an asset may be impaired, the
recoverable amount shall be estimated for that individual
asset.
Cash Generating Unit (CGU)

If it is not possible to estimate recoverable amount of an
individual asset, an entity shall determine the recoverable
amount of the cash-generating unit (CGU) (defined later)
to which the asset belongs.
18
There are two possible amounts against which the carrying
amount can be tested for impairment:
• Fair value less costs to sell (FVLCTS);

• Value in use (VIU).
It is not always necessary to measure both amounts when
testing for impairment:
If either one of these two amounts is higher than the

carrying amount, the asset is not impaired.
i.e. If the FVLCTS > the carrying amount, there is no need
to calculate the VIU of the asset.
19
Example
Example: Charlie’s Chewing Gum Machine
Cost: $1,500,000
Carrying amount: $1,010,000
Value in use (VIU): $1,130,000
No need to determine the FVLCTS (e.g. $890,000)
20
Summary
NZ IAS 36 also applies to assets that are carried at

revalued amounts.
21
Id. Worked example
Previously, an asset was written up to fair value under the
revaluation model:
Dr Accumulated depreciation XXX

Cr Asset XXX
Dr Asset 60,000
Cr Revaluation surplus (OE) 42,000
Cr Deferred tax liability 18,000
22
In the current period, the asset is impaired by $150,000
Reverse the prior write up
Dr Revaluation surplus (Equity) 42,000

Dr Deferred tax liability 18,000
Asset 60,000
Record the remaining decrease (150,000 – 60,000) as usual

against P&L:
Dr Impairment Loss (P&L) 63,000
Dr Deferred tax asset 27,000
Cr Acc. Imp. Losses – Machinery 90,000
23
II c. Recognise impairment loss for an
individual asset
Cost model
Assume an asset has a carrying amount as follows:
Original cost 160

Acc. Depn. 60
Carrying amount 100
The recoverable amount of the asset is 90 *
Therefore: impairment loss of 10
*either FVLCTS or VIU

24
Cost model
Recognise impairment in profit and loss:
Dr Impairment loss (P&L) 7

Dr Deferred tax asset 3
Cr Accumulated impairment losses 10
25
Revaluation model (1)
Assume an asset has:
Fair value 120

Acc Depn 20
Carrying amount 100
The recoverable amount of the asset is 90 *
Therefore impairment loss of 10
*either FVLCTS or VIU
26
Treat impairment as revaluation decrease (if no previous

revaluation to this particular asset):
Dr Acc Depn 20
Cr Asset 20
(to close the Acc Depn account)
Dr Revaluation write down (P&L) 7

Dr Deferred tax asset 3
Cr Asset 10
(to record impairment loss)
27
If the asset had a previous revaluation increment of 10

(ignoring taxes)
Dr A/D 20
Cr Asset 20
Dr Revaluation surplus 7
Dr Deferred tax liability 3
Cr Asset 10
i.e. first reverse the revaluation increment.
28
Subsequent depreciation of an impaired asset
Once an impairment loss is recognised, any subsequent
depreciation or amortisation is based on the new
recoverable amount.
29
Revaluation to < $zero
It is possible that the recoverable amount is negative owing
to large expected future cash outflows relating to the asset,
so the impairment loss could be greater than the carrying
amount of the asset.
In this situation, a liability for the excess should be raised

only if another standard requires it.
30
II. Impairment test process for an individual asset
Decide if impairment test necessary (using external & internal evidence)
yes ??
Determine fair value less costs to sell establish expected future cash flows
establish discount rate

Higher of these two is
recoverable amount calculate value in use
Is carrying amount greater than recoverable amount?
Yes ?? Impairment loss

reduce carrying amount to recoverable amount
31
II a. Fair value less costs to sell
Fair value is the price that would be received to sell an asset or

paid to transfer a liability in an orderly transaction between market
participants at the measurement date (NZ IAS 36, para. 6).
Fair value hierarchy

Level 1: quoted prices in active markets for identical assets
Level 2: other than quoted prices for similar assets
Level 3: unobservable inputs (e.g. financial forecasts re CGUs)

(See NZ IAS 36, para. 6; see also NZ IFRS 13)
32
How would you determine the FV of these assets?
33
Costs of disposal (costs to sell)
are incremental costs directly attributable to the disposal of
an asset (or CGU), excluding finance costs and income tax
expense.
34
Examples of disposal costs
• Legal, stamp duty and similar transaction taxes
• Costs of removal of asset
• Costs of readying asset for disposal - but not termination
benefits or reorganisation costs
Note
• Disposal costs excludes finance costs and income tax
expense
• Any costs arising after the sale of the asset, even if

arising as a result of the sale, are not regarded as costs of
disposal.
35
II b. Value in use
Value in Use
Is the present value of the future cash flows expected to be
derived from an asset or cash-generating unit.
A two-step process is used to estimate the VIU of an asset:
(a) estimate the future cash inflows and outflows to be derived

from the continuing use of the asset and from its disposal
(b) apply the appropriate discount rate.

36
VIU
The following elements together capture the economic
differences between assets:
a) estimate of future cash flows, or in more complex

cases, series of future cash flows, that the entity expects
to derive from the asset
b) expectations about possible variations in amount or
timing of those cash flows
c) time value of money represented by the current market
risk-free rate
d) the price for bearing the uncertainty inherent in asset
e) other factors (e.g. illiquidity) that would reflect in
pricing future cash flows
(NZ IAS 36, para. A1)
37
II b 1. Approaches to computing present value
There are two approaches to computing present value,

either of which may be used, depending on the
circumstances
(1)The ‘traditional’ approach use a single set of estimated

cash flows and a single discount rate.
(2)The ‘expected’ cash flow approach – assigns

probabilities to the expected future cash flows and expected
future rates of returns.
(see NZ IAS 36, para. A1 – A14)
38
In some circumstances, such as those in which comparable assets
can be observed in the marketplace, the traditional approach is
relatively easy to apply.
For assets with contractual cash flows, the traditional approach

is consistent with the manner in which marketplace participants
describe assets, as in ‘a 12 per cent bond’.
However, the traditional approach may not appropriately address

some complex measurement problems, such as the measurement
of non-financial assets for which no market for the item or a
comparable item exists.
39
Expected cash flow approach (examples)
40
Expected cash flow approach (example)
41
Some people question assigning probabilities to highly
subjective estimates under the expected cash flow
approach; however, the traditional approach also uses
estimates and has subjectivities.
(see NZ IAS 36, para. A10)
42
II b 2. Cash flow estimates
Both the ‘traditional’ and he ‘expected cash flow’
approaches require the use of management’s best
estimate of the range of economic conditions that will exist
over the remaining useful life of the asset.
Give greater weight to external evidence.
Estimates of future cash flows shall not include

(a) cash inflows or outflows from financing activities; or
(b) income tax receipts or payments.
43
Management’s estimates of future cash flows are based on
the most recent budgets/forecasts for a maximum of five
years.
(NZ IAS 36, para. 33b)
Management may use projections based on financial

budgets/forecasts over a period longer than five years if it
is confident that these projections are reliable and it can
demonstrate its ability to forecast accurately over long
periods, based on past experience.
44
II b 3. Determining the discount rate
When an asset-specific rate is not directly available from

the market, an entity uses surrogates to estimate the
discount rate.
Appendix A of NZ IAS 36 provides additional guidance on
estimating the discount rate in such circumstances.
45
Start with the entity’s weighted average cost of capital, the
entity’s incremental borrowing rate, and other market
borrowing rates.
Consider country risk, currency risk, and price risk.

The discount rate should be a pre-tax rate.

46
III. CGUs
Some assets do not individually generate cash flows
because the cash flows generated are the result of a
combination of several assets.
For these assets the impairment test is applied to a cash-

generating unit (CGU) rather than to the individual asset.
47
Cash-generating unit (CGU)
Definition
Smallest identifiable group of assets that generates cash
inflows that are largely independent of the cash inflows
from other assets or groups of assets.
48
CGU considerations
•How does management monitor the entity’s operations?

By product lines? Businesses? Individual locations?
Districts or regions?
•How does management make decisions about continuing
or disposing of the entity’s assets and operations?
•Does an active market exist for the output of a group of
assets? If so, this group constitutes a CGU.
Note: CGUs should be identified consistently from

period to period.
(NZ IAS 36, paras. 69-73)
49
Example 1
•Machine in factory producing inventory for sale.
•Impairment test needed.
•Carrying amount is greater than fair value less costs to

sell, so apparent impairment.
•But machine generates cash inflows as part of group of

assets.
So, treat the group of assets as a unit (a CGU) for

impairment testing
50
Example 2
•A mining entity owns a private railway to support its

mining activities.
•The private railway can only be sold for scrap and it does
not generate cash flows that are largely independent of the
cash inflows from the other assets of the mine .
The cash-generating unit is the mine as a whole.
51
Example 3
•A bus company provides services under contract with a

municipality that requires minimum service on each of five
separate routes
•One of the routes operates at a significant loss
CGU = the bus company as a whole
52
IV. Recognising an impairment loss
for a CGU
The impairment loss shall be allocated to reduce the

carrying amount of the assets of the unit and should
be treated as an impairment of each asset, even
though the impairment loss was based on an
analysis of the CGU.
53
However, an entity shall not reduce the carrying amount of an
asset which is part of the CGU below the highest of:
(a) its fair value less costs to sell (if determinable);

(b) its value in use (if determinable); and
(c) zero.
The amount of the impairment loss that would otherwise have

been allocated to the asset shall be allocated pro rata to the other
assets of the unit (group of units).
Goodwill is written off first.

54
CGU example 1
On 1 April 20X1 the Carrying Amount (CA) of the assets in one CGU
were as follows:
Property 200,000
Plant 30,000
55
Equipment 25,000
TOTAL $255,000
On 31 March 20X5 the company established that the FVLCTS had

dropped to around $225,000 while the Value-in-Use was estimated at
$235,000.
Required:
Undertake the Impairment Test and prepare any required journal
entries.
Carrying Amount > Recoverable Amount?
$255,000> $235,000 VIU OR $225,000FV

Impairment = Yes
Amount? = $20,000
Carrying Impairment
Asset amount Impairment loss $ New CA
Property $ 200,000 (200K/255K x 20K) 15,686 184,314

Plant $ 30,000 (30K/255K x 20K) 2,353 27,647
Equipment $ 25,000 (25K/255K x 20K) 1,961 23,039
$255,000 $ 20,000 $ 235,000
56
Journal Entry (assuming tax rate of 0% )
Dr Impairment Expense 20,000
Cr Accum Imp Loss – Property 15,686
57
Cr Accum Imp Loss – Plant 2,353
Cr Accum Imp Loss – Equipt 1,961
CGU Example 2
On 1 April 20X1 the CA of the assets in one CGU were as
follows:
Property $200,000
Plant $ 30,000
Equipment $ 25,000
58
Goodwill $ 10,000
TOTAL $265,000
On 31 March 20X2 the company established that the FVLCTS

had dropped to around $225,000 while the Value-in-Use was
estimated at $235,000.
Required
Undertake the Impairment Test and do any required journal
entries.
Carrying Amount > Recoverable Amount?
$265,000> $235,000 VIU or $225,000FV
Impairment = Yes
Amount? = $30,000
30,000
59
Journal Entry
Dr Impairment Expense 30,000
Cr Goodwill 10,000
60
Cr Accum Imp Loss – Property 15,686
Cr Accum Imp Loss – Plant 2,353
Cr Accum Imp Loss – Equipt 1,961
CGU Example 3
CGU impairment example
A CGU has an impairment loss of 100.

The carrying amounts of the assets are as follows:
Buildings 700
Machinery 300
Equipment 1,200
TOTAL 2,200
The fair value less costs to sell of the machinery = 296
Required:
Allocate the impairment loss.
61
CGU impairment loss 100
Carrying Initial
amount Proportion
allocation
Buildings 700 7/22 32*

Machinery 300 3/22 14
Equipment 1,200 12/22 54
2,200 100
* 7/22 x 100 = 32
62
• However, since the FVLCTS of the machinery is 296, it may
not be impaired below that amount.
• The remaining write down associated with machinery (14 – 4)

is allocated to the other assets of the CGU on a pro rata basis:
Adjusted Proportion Addn’l

carrying write
amount down
Buildings (700 - 32) = 668 668/1,814 4*

Equipment (1,200 - 54) = 1,146 1,146/1,814 6
1,814 10
* 668/1,814 x 1063
Journal
Dr Impairment loss 100

Cr Accumulated depn & impair loss - bldg 36*
Cr Accumulated depn & impair loss - machinery 4
Cr Accumulated depn & impair loss - equip 60**
* (32 + 4 due to the machinery limitation)

** (54 + 6 due to the machinery limitation)
64
V. Reversal of impairment loss –
individual asset
We may not increase the carrying amount of an asset other
than goodwill beyond the carrying amount applicable if no
impairment had taken place.
Impairment losses for goodwill shall not be reversed in a

subsequent period.
Cost model
Recognise reversal in profit and loss:
Dr Acc. depn and impairment losses
Cr Impairment loss reversal (P&L)
65
Revaluation model
If the prior period impairment was charged to profit and

loss, the reversal will increase income as per the cost model
on the prior slide.
66
Revaluation model
If the prior period impairment was charged to revaluation

surplus, the reversal will be treated as a revaluation
increase
Dr Asset impairment loss XXX

Cr Revaluation surplus XXX*
Cr Deferred tax liability XXX**
•Amount x (1-tax rate)

•Amount x tax rate
67
Va. Worked examples
Note:
Reversing an impairment loss for an individual asset
The increased carrying amount of an asset other than
goodwill attributable to a reversal of an impairment loss
shall not exceed the carrying amount that would have
been determined (net of amortisation or depreciation)
had no impairment loss been recognised for the asset in
prior years.
(NZ IAS 36, para 117)
68
Va. Worked examples
Teinmort acquires an asset at a cost of 850,000 with a life of
ten years and an estimated residual value of 10,000.
Cost of asset: 850,000
Depn year 1 84,000

Depn year 2 84,000
Accumulated depn 168,000
Carrying amount: 682,000
69
At the end of year 2 (eight years left), the asset has significant
damage and impairment testing is warranted:
FVLCTS 420,500
VIU 426,285 (includes the PV of the salvage)
Recoverable amount 426,285
The carrying amount is 850,000

less A/D 168,000
Net 682,000
70
Carrying amount 682,000
less Recoverable amount 426,285
Write down 255,715
Dr Impairment loss 255,715

Cr Acc. Impairment losses 255,715
Revised carrying amount at the end of year 2:
Cost 850,000
less: A/D 168,000
Impairment loss 255,715
423,715
71
In year 3 Teinmort incurs costs of 118,000 to restore the
asset to near full capacity. Assume that the costs of 118,000
are expensed.
Annual cash flows are increased to 140,000. The residual

value is still 10,000. There are seven years left.
At the end of year 3 (before the regular depreciation entry)

FVLCTS 620,000
VIU 643,455
Therefore recoverable amount = 643,455
72
The carrying amount at the end of year 3 (before the year 3
depreciation entry) is
Cost 850,000
less A/D and impair 423,715 (168,000 + 255,715)
426,285
Recoverable amount 643,455

Carrying amount 426,285
Excess 217,170
73
Should we write the asset up by 217,170?
No!
The amount of the impairment reversal is limited to

the amount that would restore the carrying amount to
what it would have been with no impairment at the
end of year 3.
74
After three years (and no impairment), the accounts would
have looked like:
Cost of asset: 850,000
Depn year 1 84,000

Depn year 2 84,000
Depn year 3 84,000
Accumulated depn 252,000
ie carrying amount of $598,000
75
The carrying amount with no impairment at the end of year
three would have been:
Asset 850,000
less A/D 252,000
net 598,000
Year 3 carrying amount before depreciation 426,285
Carrying amount with no impairment 598,000

Impairment Reversal 171,715
76
Dr A/D and Impairment losses 171,715
Cr Impairment loss reversal (P&L) 171,715
NOT the 217,170 which would have been the full amount of
the revaluation.
77
VI. Impairment disclosures
Key disclosures include:
The amount of impairment losses recognised in
profit or loss during the period and line items where
these are disclose in P&L.
The amount of reversals of impairment losses
recognised in profit or loss during the period and line
on income statement.
The amount of impairment losses on revalued assets
recognised directly in equity during the period.
The amount of reversals of impairment losses on
revalued assets recognised directly in equity during
the period.
(See NZ IAS 36 paragraphs 126 - 137)
78
Air New Zealand
79
Pacific Edge Limited
80
Pacific
Edge Ltd
81
Fisher & Paykel
82
VII. Investment properties
Separate standard – NZ IAS 40 Investment Property
Definition: Property (land or building or both)

held to earn rentals or for capital
appreciation or both.
Rather than for:
production or supply of goods or

services, for admin, or for sale in the
ordinary course of business.
83
84
Summerset
85
Characteristics:
Cash flows from investment properties are largely
independent of cash flows from other assets of the entity
(cf. owner-occupied properties)
86
Measurement of investment properties:
Initially: At cost
Subsequently: Cost model (as per NZ IAS 16), or

Fair Value model
If FV, then revaluation gain or loss goes directly to P&L

in the period in which it arises (ie. not to revaluation
reserve)
If FV model applied, than all investment properties must

be valued at FV (but see para. 53).
(NZ IAS 40, para. 33) 87
Kiwi Property
88
Kiwi Property
89
Kiwi Property
90
Kiwi Property
91
So: Assets
And don’t ignore intangible assets (NZ IAS 38!)
92
Summary
After today’s lecture you should:
Be an expert on Impairment (well, sort of!)
Have some ideas about how to account for investment
properties
So:
•Read NZ IAS 36 and 40
•Re-read the chapter and the lecture notes!
93
94

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ACCT 312

•NZ IAS 36, 40

I. Impairment of assets NZ IAS 36

Depreciation / amortisation is a process of allocation. It

This allocation process assumes that there are no

Dr Fixed asset AAAA

Cost of blg $500,000

Dr Cost of asset BBB

See worked example 6.1 (p. 207)

House Rob's House Limited

revalued: Year Cost Revaluation Dep'n Acc Closing

If this is the case, impairment testing is warranted.

e.g. effect of:

See NZ IAS 36, para. 1.

Can the carrying amount of an asset be recovered from

Definition of Impairment Loss:

“… the amount by which the carrying amount of an

The objective is to ensure that an asset is carried at no

a. Inventories (carried at lower of cost and net realisable

Impairment must be assessed at the end of each reporting period.

It is not necessary to test each asset every year to see if it is

Generally, the only assets that need to be tested for impairment

If indicated, then test for impairment.

(see NZ IAS 36, para. 9 – 12)

• Intangible assets with indefinite useful lives (no

Because the above intangibles are not amortised, a greater

If one of these intangible assets is initially recognised in the

Management should take into account the nature and use of

The minimum indicators listed in NZ IAS 36 are described

•Duringthe period, an asset’s market

•Significant changes in the environment/market.

•Market interest rates have increased.

•Thecarrying amount of the net assets is greater than the

•Obsolescence or physical damage.

•Significantadverse changes on the entity which

•Evidencefrom reporting that the economic

Cash Generating Unit (CGU)

• Fair value less costs to sell (FVLCTS);

If either one of these two amounts is higher than the

Value in use (VIU): $1,130,000

No need to determine the FVLCTS (e.g. $890,000)

NZ IAS 36 also applies to assets that are carried at

Dr Accumulated depreciation XXX

Reverse the prior write up

Dr Revaluation surplus (Equity) 42,000

Record the remaining decrease (150,000 – 60,000) as usual

Assume an asset has a carrying amount as follows:

Original cost 160

The recoverable amount of the asset is 90 *

Therefore: impairment loss of 10

*either FVLCTS or VIU

Recognise impairment in profit and loss:

Dr Impairment loss (P&L) 7

Assume an asset has:

Fair value 120

The recoverable amount of the asset is 90 *

Therefore impairment loss of 10

*either FVLCTS or VIU

Treat impairment as revaluation decrease (if no previous

Dr Revaluation write down (P&L) 7

If the asset had a previous revaluation increment of 10

In this situation, a liability for the excess should be raised

establish discount rate

Is carrying amount greater than recoverable amount?