Oracle Fusion Assets Asset Impairment: Oracle White Paper - March 2018

Oracle Fusion Assets
Asset Impairment
ORACLE WHITE PAPER | MARCH 2018
Table of Contents
Introduction ................................................................................................................................................. 3
Glossary ....................................................................................................................................................... 4
Chapter 1 Impairment Loss ...................................................................................................................... 5
Chapter 2 Prerequisite Setups ................................................................................................................. 7
1. Asset Book........................................................................................................................................ 7
2. Asset Category ................................................................................................................................. 7
3. Cash Generating Unit....................................................................................................................... 8
Chapter 3 Assign Cash Generating Unit to Assets ............................................................................... 9
1. Manual Assignment ......................................................................................................................... 9
2. Mass Assignment ............................................................................................................................. 9
Chapter 4 Create Impairment Transaction ............................................................................................. 9
1. Create/Edit Impairments.............................................................................................................. 11
2. Update Allocation .......................................................................................................................... 12
3. Rollback Impairments ................................................................................................................... 12
4. Delete Impairments....................................................................................................................... 12
5. Post Impairments .......................................................................................................................... 12
Chapter 5 Impairment Reports ............................................................................................................... 12
1. Asset Impairment Report ............................................................................................................. 13
2. Assets by Cash Generating Unit Report ....................................................................................... 13
Chapter 6 Impairment Loss Reversal.................................................................................................... 14
Chapter 7 Impairment Loss Examples .................................................................................................. 15
1. Individual Asset ............................................................................................................................. 15
2. Cash Generating Unit..................................................................................................................... 15
3. Goodwill ......................................................................................................................................... 16
4. Impairment Loss Allocation ......................................................................................................... 16
5. Goodwill Accounting ..................................................................................................................... 18
6. Revaluation Reserve...................................................................................................................... 18
7. Retirement of Asset with Impairment Loss ................................................................................ 19
Chapter 8 Impairment Loss Reversal Examples ................................................................................. 20
1. Individual Asset ............................................................................................................................. 20
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FUSION ASSETS – ASSET IMPAIRMENT
2. Cash Generating Unit..................................................................................................................... 21
3. Impairment Loss Reversal for Revalued Asset ........................................................................... 23
4. Impairment Loss Reversal Allocation .......................................................................................... 25
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Introduction
IAS 36 addresses accounting and reporting for impairment of assets. The accounting standard provide that
assets should not to be carried at more than their recoverable amounts. Requires entities to carry out
impairment tests for all their tangible and intangible assets, other than assets in certain specified categories
(for example inventories, construction contract assets, financial assets and non-current assets classified as
held for sale) on each balance sheet date.
The basic mechanism for accounting impairment is as follows:

 Companies must measure an asset's recoverable amount (the higher of the asset's or cash
generating unit's fair value, less costs to sell, and its value in use) and compare that to the book
value. The value in use equals the future cash flows to be generated by the asset or the cash
generating unit, discounted at a current market risk-free return rate, adjusted for the uncertainty
(that is, the risk) inherent to the asset.
 If the book value is higher than the recoverable amount, then impairment loss needs to be
recognized for the asset or Cash Generating Unit.
 If the book value is less than the recoverable amount, then impairment loss need not be recognized
for the asset or Cash Generating Unit.
 If asset has previously impaired, part of the previous impairment loss has to be reversed.
This document describes the asset impairment feature in Oracle Fusion Assets that is designed to meet
the International Accounting Standard (IAS) 36 Impairment of Assets.
Impairments Applicability
IAS36 Impairments applies to all assets except: [IAS 36.2]

 Inventories (see IAS 2)
 Assets arising from construction contracts (see IAS 11)
 Deferred tax assets (see IAS 12)
 Assets arising from employee benefits (see IAS 19)
 Financial assets (see IAS 39)
 Investment property carried at fair value (see IAS 40)
 Certain agricultural assets carried at fair value (see IAS 41)
 Insurance contract assets (see IFRS 41)
 Assets held for sale (see IFRS 5)
Therefore, IAS 36 applies to (among other assets):

 Land
 Buildings
 Machinery and Equipment
 Investment Property carried at cost
 Intangible assets
 Goodwill
 Investments in subsidiaries, associates and joint ventures
 Assets carried at revalued amounts under IAS 16 and IAS 38
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Glossary
Carrying amount: Carrying amount is the amount at which an asset is recognized after deducting any
accumulated depreciation (amortization) and accumulated impairment losses thereon.
Cash-generating Unit: A cash-generating unit is the smallest identifiable group of assets that generates
cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
Costs of disposal: Costs of disposal are incremental costs directly attributable to the disposal of an asset
or cash-generating unit, excluding finance costs and income tax expense.
Depreciable amount: Depreciable amount is the cost of an asset, or other amount substituted for cost in
the financial statements, less its residual value.
Depreciation: Depreciation (Amortization) is the systematic allocation of the depreciable amount of an

asset over its useful life.
Impairment Loss: An impairment loss is the amount by which the carrying amount of an asset or a cash-
generating unit exceeds its recoverable amount.
Recoverable Amount: The recoverable amount of an asset or a cash-generating unit is the higher of Net
Selling Price and its Value in Use.
Net Selling Price: The amount obtainable from the sale of an asset in a bargained transaction between
knowledgeable, willing parties less the costs of disposal
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.
Useful Life: Useful life is either:

a) The period of time over which an asset is expected to be used by the entity; or
b) The number of production or similar units expected to be obtained from the asset by the entity.
Net Book Value: Asset cost minus depreciation reserve and impairment reserve.
Historical Net Book Value: The carrying amount that would have been determined (net of amortization or
depreciation) had no impairment loss been recognized for the asset in prior accounting periods. Asset cost
minus depreciation reserve.
Impairment Loss Reversal Gain: An impairment loss reversal is the amount by which the recoverable
amount or historic net book value (whichever is less) of an asset or a cash-generating unit exceeds its
carrying amount.
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Chapter 1 Impairment Loss
Impairments occur when Carrying amount (or NBV) > higher (Value in Use, Net Selling Price)
How impairment expense or Loss is calculated can be seen in this picture.
In this example, we have a Value in Use which is higher than the Fair Value/Net Selling Price. So here
the calculation is as follows:
Impairment Loss = Cost - Depreciation Reserve - Value in Use
Or
Impairment Loss = Carrying amount (NBV) - Value in Use
Notes:
 The calculation formula is the same no matter the level (asset or Cash Generating Unit) on which
it is made. If the impairment transaction is performed at the Cash Generating Unit level, then the
NBV is calculated as sum of the assets’ values that belongs to this Cash Generating Unit and
compared with the recoverable cost of the CGU. Calculated impairment loss is distributed to each
asset upon the NBV ratio of each asset.
 Impairments are ALWAYS amortized.
 NBV is as at end of current period and includes depreciation amount of the current period.
When asset has revaluation reserve balance, the impairment loss calculated is first decreases the
revaluation reserve balance and the remaining amount, if any will be charged to impairment loss expense.
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Let us look at an example for an individual asset:
Asset cost: 1000
Method: STL 5 years
Annual depreciation of 200 (1000/5)
After 2 years, we will have the following situation:

Cost: 1000
Depreciation Reserve: 400
Carrying Amount or Net Book Value: 600
Market value or Fair Value or Net Selling Price: 400
Value in Use: 350
Impairment Loss = Cost 1000 - Depreciation Reserve 400 - NSP 400 [higher (Value in Use 350, Net
Selling Price 400)] = 200
Or
Impairment Loss = Carrying Amount or NBV 600 - NSP 400 [higher (Value in Use 350, Net Selling Price
400)] = 200
Let us look at an example for a Cash Generating Unit:
The CGU consist of 3 assets:

Asset Cost Reserve NBV
1 1200 700 500
2 1000 600 400
3 800 500 300
Sum 3000 1800 1200
The Net Selling Price for the CGU is 1000. This would result in an Impairment Loss of 200 for the CGU
(NBV 1200 - NSP 1000 = 200). The impairment loss of 200 is distributed across the 3 assets based on the
ratio of the individual NBV over the total CGU NBV:
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Asset 1: Loss 200 * NBV 500 / CGU NBV 1200 = 83.33
Chapter 2 Prerequisite Setups

1. Asset Book
Impairments needs to be enabled for the asset book. In Manage Asset Books page, query up the book and
open it for creation or edit. At the top right there is check box 'Allow Impairment' which needs to be checked
to enable the impairments for the book.
2. Asset Category
You need to set up Impairment Expense and Impairment Reserve account for each asset category assigned
to the asset book.
In Manage Asset Categories page, search for the appropriate asset category and edit it. In Accounts tab of
the Accounting Rules region, enter ‘Expense’ type account for impairment Expense account and ‘Asset’
type account for impairment reserve account.
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3. Cash Generating Unit
The recoverable amount should be determined for each individual asset. If it is not possible to estimate the
recoverable amount (Net Selling Price or the value in use) of the individual asset, an enterprise should
determine the recoverable amount of the Cash Generating Unit to which the asset belongs (the asset’s
cash-generating unit).
A cash generating unit is the smallest identifiable group of assets that generates cash inflows from
continuing use that are largely independent of the cash inflows from other assets or groups of assets.
Example: A mining enterprise owns a private railway to support its mining activities. The private railway
could be sold only for scrap value and the private railway does not generate cash inflows from continuing
use that are largely independent of the cash inflows from the other assets of the mine.
It is not possible to estimate the recoverable amount of the private railway because its value in use cannot
be determined, and probably is different from its value as scrap. Therefore, the entity will have to estimate
the recoverable amount of the cash-generating unit to which the railway provides service, i.e. mine as a
whole.
If you are using Cash Generating Units (CGU), then you also need to define as many CGUs as required.
Navigate to setup task Manage Cash Generating Units with the setup/implementation role.
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Enter the name of the cash generating unit, the CGU name has to be unique. Then choose the book in
which the CGU is to be used. The description field is used for describing the cash generating unit. The
Enabled check box indicates whether the Cash Generating Unit is in use or not.
Chapter 3 Assign Cash Generating Unit to Assets

The assignment of CGUs to assets cannot be automated as management decision is involved. Oracle
Fusion Assets provides the option to manually assign the cash generating units to assets or via mass
assignment.
1. Manual Assignment
A Cash Generating Unit drop-down choice list is available in the following pages:
 Add Asset (General Rules tab in Financial Details region)
 Edit Source Line (General Rules tab in Financial Details region)
 Add Asset and Prepare Source Lines ADFdi spreadsheets
 Change Financial Details (General Rules tab in Financial Details region)
The cash generating unit field is optional and can be changed from one CGU value to another or can be
made null. The only restriction is that if Impairment transaction has occurred for the asset in the current
period then the CGU assignment cannot be changed in the current period unless the impairment is undone
or rolled back.
2. Mass Assignment
You can use the Mass Depreciation Rules feature to assign or modify Cash Generating Units for many
assets to at one go. The assets can be
 Assigned to a CGU
 Moved out of the CGU
 Transferred from one CGU to another
Chapter 4 Create Impairment Transaction

In Assets landing page, Select task Impair Assets to go to Impair Assets page.
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In this page, you can create, update, rollback, query and view the in progress as well as completed
impairments transactions. The page has a Search area where you can search prior impairments and a
results table. The results table displays the details both at asset level and cash generating unit level
depending upon at what level the impairment is created. Even though impairments can be entered against
multiple CGUs or Assets, when they are queried they will be broken and displayed by CGU or Asset Number
respectively.
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Note: Impairment transaction is an amortized transaction and accordingly you cannot perform anymore
expensed transactions after posting the impairment to the asset. For Impairments the amortization start
date will be the same as impairment date.
1. Create/Edit Impairments
To create impairments, Click on Create icon, Select book and click Next button. The Create Impairment
ADFdi spreadsheet will be opened to enter impairment data. To create impairment loss for an asset or
CGU, select the transaction type as ‘Impairment’.
You can enter either the impairment loss amount directly to each asset or provide the Net Selling Price
and/or Value in Use for each asset. When the Net Selling Price and/or Value in Use are provided the Oracle
Fusion Assets calculates the impairment loss for the assets.
Alternatively the impairment loss can be calculated at the cash generating unit level. In this case also you
can enter either the impairment loss amount directly to each CGU or provide the Net Selling Price and/or
Value in Use for each CGU. When the Net Selling Price and/or Value in Use are provided the Oracle Fusion
Assets calculates the impairment loss for the CGU and allocates that impairment loss among all the assets
in that CGU.
You cannot enter a value for all three fields, net selling price, value in use, and impairment loss. The upload
program will mark such a row as error. The error message received in the spreadsheet in that case is: You
must enter either a value for the net selling price or the value in use or both. (FA-645705)
Enter goodwill amount or the goodwill asset number. If both are entered, the system will use the goodwill
amount for calculation and the goodwill asset number for account derivation. If only the goodwill asset is
entered then the entire net book value of the goodwill asset will be considered for impairment loss
calculation.
The status can be either ‘New’ or ‘Preview’. If uploading the data with status New the data will only be saved
and no impairment loss will be calculated. To calculate the impairment loss, the data needs to be uploaded
with status Preview. The process impairment program will first validate all the values entered and then
compare the book value of the assets with the higher of Net Selling Price or Value in Use and determines
if there is an impairment, if an impairment exists then the impairment amount will be allocated to the
individual assets by giving consideration to, goodwill, revaluation reserve etc..
The impairment transactions in status ‘New’ can be queried and updated by the users at any time. Only
impairments in status Previewed can be posted to the assets and these impairments have to be updated
and previewed before posting.
To edit the impairments query them in Impair Assets page, select them and click the Edit icon. This will
upload the impairment transactions in the Update Impairments ADFdi spreadsheet.
The search results show the impairment information at asset or CGU level. There will be more than one
row displayed for each impairment batch. When selecting a particular row and clicking the Edit icon all the
rows with this impairment batch, even though they are not selected, will be exported to the spreadsheet.
Only impairments in the status of New, Previewed, Depreciation Failed and Posting Error can be exported.
You can change the status to Preview and optionally update the other data like Impairment Data, Net Selling
Price, Value in Use, Impairment Loss, and Comments and then upload them back.
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2. Update Allocation
You can update impairment loss allocation for the CGU impairment transactions in status Previewed.
Change the loss allocated to assets and upload back to the application. To update the impairment loss, you
have to query the CGU impairment in status Previewed, select and then click on the Update Allocation
button.
The sum of impairment loss allocated to individual assets in cash generating unit should be equal to the
impairment loss calculated for the CGU.
3. Rollback Impairments
If the impairment loss posted to the assets are wrong or erroneously posted they can be rolled back.
Note: The posted impairment transaction can be rolled back only in the period in which it is posted. After
the rollback the status will be changed from Posted to Deleted.
To roll back the impairment loss query the impairment in status Posted, select and then click on the action
Rollback under Actions menu. The Rollback action will be enabled only if the selected impairment is in
status Posted.
4. Delete Impairments
You can delete the unnecessary/unintended impairment transactions that are not yet posted to the assets.
The impairments in status New, Previewed, Depreciation Failed and Posting Failed can be deleted. After
delete the impairment transaction will be completely removed from the system.
To delete the impairment query the impairment, select and then click on the action Delete under Actions
menu.
5. Post Impairments
Only transactions in status Previewed can be posted to the assets. You can post the impairment transaction
to the assets only after verifying the calculations.
To post the impairments to assets:

 Search the transaction in status Previewed, select an asset impairment and click on the Post
button. Only selected asset/CGU impairment will be posted
 Search the transaction in status Previewed, select an asset impairment, click Actions menu, and
select Post Batch. All the asset/CGU impairment in that batch will be posted
 Search the CGU transaction in status Previewed, select it and click on the Update Allocation
button. In the Update Impairment Allocation ADFdi spreadsheet review the calculations and click
on Submit and Post button
The process impairment program will validate the total of the CGU with the total for individual assets and
process impairment transactions and print the Impairment Transactions report.
Chapter 5 Impairment Reports

The following reports exist to report on impairments:
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1. Asset Impairment Report
Use this report to see all the Impairment transactions of the period. When the report is automatically
submitted when the Impairments are posted but will only contain the data of the current impairments.
Therefore, in order to see all the impairment transactions for the period, you will have to run this report
separately.
The report shows the assets that had impairment transactions in the selected period, assets that are
grouped under their Cash Generating Units.
You must enter a Book, Set of Books Currency and Period when you request this report. Optionally you
can enter Impairment and Cash Generating Unit values.
Selected Headings:
Cost: The asset cost at the date of Impairment transaction.
Net Book Value: The amount that is calculated at the date of Impairment transaction. Note that it contains
the result of Depreciation amount for the period when Impairment transaction occurred.
Net Selling Price: The amount that was used (if any) for Net Selling Price in the Impairments transaction
for the asset.
Value in Use: The amount that was used (if any) for Value in Use in the Impairments transaction for the
asset.
Impairment Loss: The amount of Impairment loss that was either calculated based on Net Selling Price
and/or Value in Use or either that was manually entered in the Impairment transaction.
2. Assets by Cash Generating Unit Report

Use this report to review up to date the assets information for each Cash Generating Unit. With this report
you can review the Cash Generating Units and their assets before and after the Impairment transactions.
You can decide, for example, if it is necessary to perform new Impairments transactions at the asset or
Cash Generating Unit level. Also you can see the Impairment information regarding YTD Impairment and
Impairment reserve.
You must enter Book and Set of Books when you request this report. Optionally you can enter Cash
Generating Unit and Asset Number information.
Selected Headings:
Cost: The current asset/CGU cost.
Net Book Value: The current NBV in the moment when the report is run.
Impairment Reserve: The current value of Accumulated Impairment for the asset/CGU.
YTD Impairment: The current value of YTD Impairment for the asset/CGU.
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Chapter 6 Impairment Loss Reversal
An enterprise should assess at each balance sheet date whether there is any indication that an impairment
loss recognized for an asset in prior accounting periods may no longer exist or may have decreased. If any
such indication exists, the enterprise should estimate the recoverable amount of that asset.
If estimated recoverable cost is more than the carrying cost of the asset then the impairment loss recognized
earlier has to be reversed to the extent the estimated recoverable cost exceeds carrying cost of the asset.
After reversal, the carrying amount of an asset should not exceed the lower of:
 Estimated recoverable Cost; and
 Carrying cost that would have been determined (net of amortization or depreciation) had no
impairment loss been recognized for the asset in prior accounting periods.
The impairment loss to be reversed is

 When recoverable amount (Higher of Net Selling Price or Value in Use) is more than the historical
net book value:
o Impairment Loss Reversal = Historical Net Book Value - Net Book Value
 When recoverable amount (Higher of Net Selling Price or Value in Use) is less than the historical
net book value:
o Impairment loss Reversal = Recoverable Amount - Net Book Value
To create impairment reversal transaction, go to Impair Assets page and click the Create icon. Create
Impairment spreadsheet will be opened. Select Impairment Type as ‘Impairment reversal’.
You can enter either the impairment loss reversal amount directly in Impairment Loss column as negative
amount (like -5000 .00) or provide Net Selling Price and/or Value in Use for each asset. When Net Selling
Price and/or Value in Use are provided Assets will calculate impairment loss reversal amount.
Impairment loss can be calculated at cash generating unit level. For this also, you can enter either
impairment loss reversal amount directly in Impairment Loss column as negative amount to each CGU or
provide Net Selling Price and/or Value in Use for each CGU. When Net Selling Price and/or Value in Use
are provided Assets will calculate impairment loss reversal amount for the CGU and allocates that
impairment loss reversal amount among all the assets in that CGU.
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Chapter 7 Impairment Loss Examples
If the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset
shall be reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss
should be recognized as an expense in the income statement immediately
1. Individual Asset
In scenarios where the impairment loss amount is not provided, the system calculates impairment loss as
the difference between the NSP/Value in use and the net book value of the asset for a unit asset. If the
net book value is higher than the NSP/Value in use then there is an impairment loss.
Example of calculating impairment loss on an individual asset:
Asset 1 Amounts
Cost 10,000
Accumulated Depreciation (5,000)
Net Book Value 5,000
NSP/Value in Use of Asset 1: 2,000
Calculation of Impairment Loss:

NSP/Value in use of Asset 1 2,000
Less Net Book Value 5,000
Impairment Loss 3,000
Impairment Loss can exceed the depreciation limit of the asset.

In the case of a CGU the net book value is calculated as the sum of Net book value of all the assets in the
CGU for a given book. This aggregate NBV is then compared with Net Selling Price/Value in Use to test
for an impairment loss. If the NBV is greater than the NSP/VIU then the difference is the impairment Loss
at the CGU level.
Example of calculating impairment loss for a cash-generating unit
Cash Generating Unit: CGU-A
Members of CGU-A: Asset 1
Asset 2
Asset 3
Amounts Asset 1 Asset 2 Asset 3 CGU - A
Cost 10,000 10,000 20,000 40,000
Accumulated depreciation (5,000) (5,000) (10,000) (20,000)
Net Book Value 5,000 5,000 10,000 20,000
NSP/Value in use of CGU-A: 10,000
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NSP/Value in use of CGU-A 10,000
Less CGU-A Net Book Value 20,000
Net Book Value: Net book should include current period depreciation.
3. Goodwill
Allocating goodwill across CGUs is beyond the scope of this application. However if goodwill is provided
for a CGU or if a goodwill asset number is provided for the CGU where goodwill is tracked as a fixed
asset, the impairment loss calculation will consider goodwill as follows:
Add the amount of goodwill to the Net Book Value of the Asset and subtract the NSP/VALUE IN USE
from the total.
Total NBV + Goodwill – NSP/Value in use = Impairment Loss
Example of calculating impairment loss for a cash-generating unit with Goodwill amount
Asset 2
Asset 3
Cost 10,000 10,000 20,000 40,000
Accumulated Depreciation (5,000) (5,000) (10,000) (20,000)
Net Book Value 5,000 5,000 10,000 20,000
Goodwill allocated to CGU-A: 2,000


CGU-A Net Book Value 20,000
Add Goodwill allocated to CGU-A 2,000
Less NSP/Value in use of CGU-A 10,000
4. Impairment Loss Allocation

Impairment loss calculated at the CGU level has to be allocated and recorded at the individual asset
level.
Impairment loss amount is allocated to each individual assets in the CGU based on the NBV at the end of
the impairment period for each individual asset.
Example of allocating impairment loss to assets in a cash-generating unit
Asset 2
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Asset 3
Cost 10,000 10,000 20,000 40,000
Net Book Value 5,000 5,000 10,000 20,000
Goodwill allocated to CGU-A: 2,000


CGU-A Net Book Value 20,000
Add Goodwill allocated to CGU-A 2,000
Less NSP/Value in use of CGU-A 10,000
Allocation of Impairment Loss:

1) Goodwill: 2,000
2) CGU- A: 10,000
12,000
Allocation of Impairment Loss to CGU-A:

1) Asset 1 = CGU-A impairment loss * Asset 1 NBV / (Total CGU-A
NBV)
= 10,000 * 5,000 / 20,000
= 2,500

NBV)
= 10,000 * 5,000 / 20,000
= 2,500

NBV)
= 10,000 * 10,000 / 20,000
= 5,000
Impairment Loss of Cash Generating Unit – A:

Cost 10,000 10,000 20,000 40,000
Net Book Value 5,000 5,000 10,000 20,000
Impairment Loss (2,500) (2,500) (5,000) (10,000)
NBV after Impairment Loss 2,500 2,500 5,000 10,000
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5. Goodwill Accounting
Oracle Assets will create accounting for goodwill only if goodwill is being tracked as a fixed asset and the
goodwill asset number is entered against the CGU at the time of the impairment transaction.
However if goodwill amount is provided then goodwill will be considered for calculating the impairment
loss amount to be applied to assets in a CGU.
Example of accounting for impairment loss where goodwill asset number is provided:
Impairment Loss of Cash Generating Unit – A:
Cost 10,000 10,000 20,000 40,000
Net Book Value 5,000 5,000 10,000 20,000
Impairment Loss (2,500) (2,500) (5,000) (10,000)
NBV after Impairment Loss 2,500 2,500 5,000 10,000
Goodwill for CGU – A: 2000

Accounting: To the extent of goodwill
DR Impairment Expense account 2,000
CR Accumulated Impairment account 2,000
The accounts set up at the category level for the goodwill asset is used to create accounting.
Impairment Loss Accounting for Assets
Asset 1:
Asset 2:
Asset 3:
6. Revaluation Reserve
Any impairment loss of a revalued asset should be treated as a revaluation decrease under the
International Accounting Standard (IAS) 16 Property, Plant and Equipment. An impairment loss on a
revalued asset is first recognized directly against any revaluation surplus (decrease the revaluation
reserve) for the asset. Any remaining impairment loss balance is recognized as an expense in the
income statement.
Example of accounting for impairment loss on a revalued asset:
Asset 1 Amounts
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Cost 10,000
Revaluation Reserve 1,000
NSP/Value in use of Asset 1: 2,000

NSP/Value in use of Asset 1 2,000
Less: Asset1 Net Book Value 5,000
Impairment Loss of Asset 1:

Asset 1
Amounts
Cost 10,000
Impairment Loss Recognized (3,000)
Net Book Value after Impairment Loss 2,000
Decrease in Revaluation Reserve 1,000
Impairment Loss Expensed 2,000
The accounting entries for recognizing impairment loss on a revalued asset is listed as follow:
DR Revaluation Reserve 1,000
Any remaining impairment loss is recognized as an impairment expense, illustrated as follow:
7. Retirement of Asset with Impairment Loss

When the asset is retired either fully or partially the proportionate impairment reserve should also be
retired like the depreciation reserve.
You place an asset in service in Year 1, Quarter 1. The asset cost is 4,000. The life is 4 years, and you
are using straight-line depreciation. In Year 3, Quarter 3, you sell the asset for 2,000. The cost to remove
the asset is 500. You retire revaluation reserve in this book.
Dr. Accumulated Impairment 100
Dr. Accumulated Depreciation 2,500.00
Dr. Proceeds of Sale Clearing 2,000.00
Dr. Cost of Removal Gain 500.00
Dr. Revaluation Reserve 600.00
Dr. Accumulated Impairment 100.00
Dr. Net Book Value Retired Gain 1,400.00
Cr. Asset Cost 4,000.00
Cr. Proceeds of Sale Gain 2,000.00
Cr. Cost of Removal Clearing 500.00
Cr. Revaluation Reserve Retired Gain 600.00
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Chapter 8 Impairment Loss Reversal Examples
An enterprise should assess at each balance sheet date whether there is any indication that an
impairment loss recognized for an asset in prior accounting periods may no longer exist or may have
decreased. If any such indication exists, the enterprise should estimate the recoverable amount of that
asset.
If the estimated recoverable amount is more than the current carrying cost of the asset, the asset’s
carrying cost should be increased to its estimated recoverable amount and the increase is a reversal of
an impairment loss recognized for the asset in prior accounting periods.
The increased carrying amount of an asset due to a reversal of an impairment loss should not exceed the
carrying amount that would have been determined (net of amortization or depreciation) had no
impairment loss been recognized for the asset in prior accounting periods.
1. Individual Asset
An asset is purchase for 10,000.00 (Straight Line for 10 years). At the end 5th year, the asset has an
accumulated depreciation of 5000.00. There is an indication that the asset has been impaired.
The Value in Use is 2000.00 and the Net Selling Price is 1500.00. The recoverable cost of the asset is
2000.00. Impairment Loss = NBV – Recoverable Cost = 3000.00
Accounting Entries for Impairment Loss:

Impairment Expense Account Dr 3000.00
Accumulated Impairment Cr 3000.00
The NBV of the Asset is 2000.00. Depreciation Expense for year 6 is 2000.00/5 = 400.00
Accounting Entry for Depreciation Expense:
Depreciation Expense Account Dr 400.00
Accumulated Depreciation Account Cr 400.00
NBV at the end of 6th year = 2000.00 – 400.00 = 1600.00
Scenario 1
At the end of 7th year, there is an indication that the asset has recovered its value. The asset’s recoverable
cost is assessed as 2000.00. The recoverable cost is more than the NBV of the asset (1200.00).
Initial Estimate for Impairment Loss Reversal based upon full recovery = 2000 – 1200 = 800.00
The increased Net Book Value/carrying amount due to reversal should not be more than what the
depreciated historical cost would have been if the impairment had not been recognized.
Increased Net Book Value of the Asset due to reversal = 2000.00
Depreciated Historical Cost had the initial impairment not been done = 3000.00 (10,000.00 - 7,000.00)
Increased Net Book Value of the Asset due to reversal is not more than the depreciated historical cost of
3000.00. So, the Impairment reversal can take place to its full extent. The following accounting entry has
to be posted.
Accounting Entry for Impairment Loss:
Accumulated Impairment Account Dr 800.00
Impairment Expense/Loss Account Cr 800.00
20 | P a g e
Scenario 2
At the end of 7th year, there is an indication that the asset has recovered its value. The asset is assessed
for recoverable cost which is found to be 5000.00. The recoverable cost is more than the NBV of the
asset (1200.00).
Initial estimate for Impairment Loss Reversal = 5000 – 1200.00 = 3800.00
Increased Net Book Value of the Asset due to reversal = 5000.00. The increased Net Book Value/carrying
amount due to reversal should not be more than what the depreciated historical cost would have been if
the impairment had not been recognized.
Depreciated Historical Cost had the initial impairment not been done = 3000.00 (10,000.00 - 7,000.00).
Increased Net Book Value of the Asset due to reversal is more than the depreciated historical cost of
3000.00. So, the Impairment reversal can take place only to the extent where the final NBV is 3000.
Final Impairment Loss Reversal = 3000.00 – 1200.00 = 1800.00(instead of 3800.00).
Accounting Entry for Impairment Loss:
Accumulated Impairment Account Dr 1,800.00
Impairment Expense/Loss Account Cr 1,800.00

Cash Generating Unit A has 3 assets. All these assets are acquired in the year 2000 and estimated to
have a useful life of 15 years.
At the end of 4th year there was a change in the market condition and the cash generating unit future
earnings were expected to be impacted considerably. The cash generating units recoverable cost is
estimated as 32000.00
The Net Book Value of the assets at the end of 2003

Cost 15,000 15,000 30,000 60,000
Net Book Value 11,000 11,000 22,000 44,000
Estimated Recoverable Cost 32,000
Impairment Loss (3,000) (3,000) (6,000) (12,000)
21 | P a g e
Net Book Value after Impairment 8,000 8,000 16,000 32,000
Accounting Entries for Impairment Loss:

Asset 1
Impairment Expense Dr 3000.00
Impairment Reserve Cr 3000.00
Asset 2
Asset 3
The depreciation calculation for the 5 year = Net Book Value after Impairment/Remaining Life
Asset 1 8000/11 = 727.27 i.e. 727
Asset 2 8000/11 = 727.27 i.e. 727
Asset 3 16000/11 = 1454.55 i.e. 1455
At the end of 6th year the market conditions has improved and the future earnings outlook is very good.
Due to this change in market condition the recoverable cost of the asset is estimated as 38,000
The net book value of assets at the end of 6th year is as follows
Amounts Asset 1 Asset 2 Asset 3 CGU – A
Cost 15,000 15,000 30,000 60,000
Accumulated Depreciation (1-4years) (4,000) (4,000) (8,000) (16,000)
Net Book Value 11,000 11,000 22,000 44,000
Impairment Loss (3,000) (3,000) (6,000) (12,000)
Net Book Value after Impairment 8,000 8,000 16,000 32,000
Depreciation Expense (5-6 years) (1454) (1454) (2910) (5818)
Net Book Value 6546 6546 13090 26182
Initial estimate for Impairment Loss Reversal = 38,000 – 26,182 = 11,818. The increased Net Book Value
of the Asset due to reversal will be 38,000.00. The increased Net Book Value/carrying amount due to
reversal should not be more than what the depreciated historical cost would have been if the impairment
had not been recognized.
Depreciated Historical Cost had the initial impairment not been done will be:
Asset1 - 15,000-6,000 = 9,000
Asset2 - 15,000-6,000 = 9,000
Asset3 - 30,000-12,000 = 18,000
CGU-A - 60,000-(24,000 = 36,000
22 | P a g e
Increased Net Book Value of the Asset due to reversal is more than the depreciated historical cost of
36000. So, the Impairment reversal can take place only to the extent where the final NBV is 36000.
Final Impairment Loss Reversal = 36000 – 26182 = 9818(instead of 11818)

Impairment Loss Reversal allocation to assets1 = 9,818/26182*6546 = 2454
The net book value of assets after reversal
Amounts Asset 1 Asset 2 Asset 3 CGU – A
Cost 15,000 15,000 30,000 60,000
Accumulated Depreciation (1-4years) (4,000) (4,000) (8,000) (16,000)
Net Book Value (1+2) 11,000 11,000 22,000 44,000
Impairment Loss (3,000) (3,000) (6,000) (12,000)
Net Book Value after Impairment (3+4) 8,000 8,000 16,000 32,000
Depreciation Expense (5-6 years) (1454) (1454) (2910) (5818)
Impairment Loss reversal 2454 2454 4910 9818
Net Book Value (5+6+7) 9000 9000 18000 36000
3. Impairment Loss Reversal for Revalued Asset

Example of accounting for impairment loss reversal on a revalued asset:
The asset1 was placed in service on 01-Jan-1998 with a cost of 10,000 and STL 5 years. At the start of
the 2nd year the asset was revalued upwards by 10%. Asset details as on 31-Dec-2000 is
Asset 1 Amounts
Cost 11,000
Date Placed in Service 01-Jan-1998
Method STL 5 Years
Accumulated Depreciation 6,600
Revaluation Reserve 800
Monthly Depreciation 2,200
NSP/Value in use of Asset 1: 2,000
23 | P a g e
NSP/Value in use of Asset1 2,000
Less Asset1 Net Book Value -) 4,400
Impairment Loss of Asset 1:
Asset 1 Amounts
Cost 11,000
Impairment Loss Recognized (2,400)
Net Book Value after Impairment Loss 2,000
Decrease in Revaluation Reserve 800
Impairment Loss Expensed 1600
Accounting Entry
DR Revaluation Reserve 800
CR Impairment Reserve 800
Any remaining impairment loss is recognized as an impairment expense, illustrated as follow:

DR Impairment Expense 1,600
CR Impairment Reserve 1,600
At the end of 4th year, there is an indication that the asset has recovered its value. As on 31-Dec-2001
the asset’s recoverable cost is assessed as 2,500.
Asset 1 Amounts
Cost 11,000
Date Placed in Service 01-Jan-1998
Method STL 5 Years
Accumulated Depreciation 7,600
Impairment Reserve 2,400
Revaluation Reserve 0
Historical Net Book Value: 11,000 – (6,400+2,200) = 2,200
Impairment loss reversal is 2,200-1,000 = 1,200
NBV after impairment reversal is 11,000 (Cost) - 7,600 (Depreciation Reserve) - 1200 (Impairment
Reserve) = 2,200
24 | P a g e
The impairment loss reversal to the extent it was previously recognized as loss should be recognized as
income in the statement of profit and loss and balance, if any to the revaluation reserve account
Dr Impairment Reserve 1,200
Cr Impairment Reversal Gain 1,200
4. Impairment Loss Reversal Allocation

Cash Generating Unit A has 5 assets. All these assets are acquired in the year 2000 and estimated to
have a useful life of 12 year.
At the end of 5th year there was a change in the market condition and the cash generating unit future
earnings were expected to be impacted considerably. The cash generating units recoverable cost is
estimated as 72,000.00
In 7th year the unplanned depreciation taken for asset1 and asset2 are 750 and 250 respectively. At the
end of the 7th year the asset recoverable cost is estimated to be 62,000.
Asset1 Asset2 Asset3 Asset4 Asset5 CGU
Cost 36000.00 18000.00 36000.00 18000.00 36000.00 144000.00
Depreciation Y1 –Y5 (15000.00) (7500.00) (15000.00) (7500.00) (15000.00) (60000.00)
NBV at the end of Y5 21000.00 10500.00 21000.00 10500.00 21000.00 84000.00
Impairment Loss (3000.00) (1500.00) (3000.00) (1500.00) (3000.00) (12000.00)*
Depreciation for Y6 (2571.43) (1285.71) (2571.43) (1285.71) (2571.43) (10285.71)
Depreciation for Y7 (3321.43) (1535.71) (2571.43) (1285.71) (2571.43) (11285.71)
NBV at the end of Y7 12107.14 6178.58 12857.14 6428.58 12857.14 50428.58
Historical NBV 14250.00 7250.00 15000.00 7500.00 15000.00 59000.00
Max Impairment Loss 2142.86 1071.42 2142.86 1071.42 2142.86 8571.42

Reversal Allowed
Impairment Loss Reversal 2057.87 1050.18 2142.86 1071.42 2142.86 8465.19

Allocation 1st round
Impairment Loss Reversal 70.34 21.24 91.58

Allocation 2nd round
Impairment Loss Reversal 14.65 14.65

Allocation 3rd round
Total Impairment Loss 2142.86 1071.42 2142.86 1071.42 2142.86 8571.42

Reversal Allocated
*The net book value of the CGU at the end of 5th year is 84000 and the impairment loss for the CGU is
12000(84000-72000)
Impairment Loss Reversal calculation:
25 | P a g e
Impairment Loss Reversal Amount = Net Book Value Minus (Recoverable Cost or HNBV whichever is
less) 50828.58-59000 = 8571.42.
Impairment loss reversal should be proportionately allocated to all the assets and after the allocation the
net book value for the individual asset should not exceed its historical net book value.
Allocation to Assets: Round 1
Asset1 8571.42/50428.58*12107.14 = 2057.87
Asset2 8571.42/50428.58*6178.58 = 1050.18
Asset3 8571.42/50428.58*12857.14 = 2185.35 restricted to Max allowed 2142.86
Total Impairment Loss Reversal to be allocated is 8571.42
Total Impairment Loss Reversal Allocated is 8465.19
Balance Impairment Loss Reversal is 106.23
The balance amount needs to be allocated to the remaining assets, which have NBV less than HNBV.
Only asset1 and asset2 have NBV less than HNB and the remaining amount has to be allocated to them
as below
Asset1 106.23/18285.72*12107.14 = 70.34

The remaining 14.65 106.23-(70.34+21.24) to be allocated needs to be allocated to asset1.
26 | P a g e

Oracle Fusion Assets Asset Impairment: Oracle White Paper - March 2018

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Oracle Fusion Assets

The basic mechanism for accounting impairment is as follows:

IAS36 Impairments applies to all assets except: [IAS 36.2]

Therefore, IAS 36 applies to (among other assets):

Depreciation: Depreciation (Amortization) is the systematic allocation of the depreciable amount of an

Useful Life: Useful life is either:

How impairment expense or Loss is calculated can be seen in this picture.

Impairment Loss = Cost - Depreciation Reserve - Value in Use

Impairment Loss = Carrying amount (NBV) - Value in Use

After 2 years, we will have the following situation:

Let us look at an example for a Cash Generating Unit:

The CGU consist of 3 assets:

Chapter 2 Prerequisite Setups

Chapter 3 Assign Cash Generating Unit to Assets

Chapter 4 Create Impairment Transaction

To post the impairments to assets:

Chapter 5 Impairment Reports

2. Assets by Cash Generating Unit Report

The impairment loss to be reversed is

Accumulated Depreciation (5,000)

Net Book Value 5,000

NSP/Value in Use of Asset 1: 2,000

Calculation of Impairment Loss:

2. Cash Generating Unit

Cost 10,000 10,000 20,000 40,000

Accumulated depreciation (5,000) (5,000) (10,000) (20,000)

Net Book Value 5,000 5,000 10,000 20,000

NSP/Value in use of CGU-A: 10,000

Cost 10,000 10,000 20,000 40,000

Accumulated Depreciation (5,000) (5,000) (10,000) (20,000)

Net Book Value 5,000 5,000 10,000 20,000

Goodwill allocated to CGU-A: 2,000

Calculation of Impairment Loss:

4. Impairment Loss Allocation

Cost 10,000 10,000 20,000 40,000

Accumulated Depreciation (5,000) (5,000) (10,000) (20,000)

Net Book Value 5,000 5,000 10,000 20,000

Goodwill allocated to CGU-A: 2,000

Calculation of Impairment Loss:

Allocation of Impairment Loss:

Allocation of Impairment Loss to CGU-A:

2) Asset 2 = CGU-A impairment loss * Asset 2 NBV / (Total CGU-A

3) Asset 3 = CGU-A impairment loss * Asset 3 NBV / (Total CGU-A

Impairment Loss of Cash Generating Unit – A:

Cost 10,000 10,000 20,000 40,000

Accumulated Depreciation (5,000) (5,000) (10,000) (20,000)

Net Book Value 5,000 5,000 10,000 20,000

Impairment Loss (2,500) (2,500) (5,000) (10,000)

NBV after Impairment Loss 2,500 2,500 5,000 10,000

Cost 10,000 10,000 20,000 40,000

Accumulated Depreciation (5,000) (5,000) (10,000) (20,000)

Net Book Value 5,000 5,000 10,000 20,000

Impairment Loss (2,500) (2,500) (5,000) (10,000)

NBV after Impairment Loss 2,500 2,500 5,000 10,000

Goodwill for CGU – A: 2000

Accumulated Depreciation (5,000)

Net Book Value 5,000

Revaluation Reserve 1,000

NSP/Value in use of Asset 1: 2,000