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New ias 36

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ESHETIE MEKONENE AMARE
ESHETIE MEKONENE AMARE

This document summarizes the key aspects of IAS 36 regarding impairment of assets. IAS 36 aims to ensure assets are not carried at more than their recoverable amount. It defines terms like carrying amount, cash-generating units and impairment loss. The standard outlines how to identify impaired assets, measure recoverable amount, recognize impairment losses, allocate losses to cash-generating units including goodwill, and reverse impairment losses. Entities must disclose impairment losses, reversals and reasons for changes in carrying amounts.

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IAS 36 Impairment of Assets
Overview  OBJECTIVE  SCOPE  DEFINITIONS  IDENTIFYING AN ASSET THAT MAY BE IMPAIRED  MEASURING RECOVERABLE AMOUNT  RECOGNISING AND MEASURING AN IMPAIRMENT LOSS  CASH-GENERATING UNITS AND GOODWILL  REVERSING AN IMPAIRMENT LOSS  DISCLOSURE  Questions and Discussion
OBJECTIVE  The objective of this Standard is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount
SCOPE The standard shall be applied for all assets except IAS 20, IAS 12, IAS 19, IAS 40, IAS 41 IFRS 4, IFRS 5, IFRS 9, IFRS 15
DEFINITIONS Carrying amount:- is the amount at which an asset is recognized after deducting any accumulated depreciation (amortization) and Accumulated impairment losses thereon.
continued 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
continued An impairment loss:- is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. The recoverable amount of an asset or a cash- generating unit:- is the higher of its fair value less costs of disposal and its value in use.
IDENTIFYING AN ASSET THAT MAY BE IMPAIRED  An entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, The entity shall estimate the recoverable amount of the asset.
continued o Irrespective of whether there is any indication of impairment, an entity shall also test:  an intangible asset with an indefinite useful life & goodwill acquired in a business combination Note:- Impairment test should be made before the end of the period at the same time on yearly basis
continued Indications for Impairment:- External sources of information:-  The decline in asset values  significant change in technological, market, economic or legal environment in which the entity operates  the increase in market interest rate or market rate of return on investment
continued Internal sources of information:-  obsolescence or physical damage  decline in performance  significant plan change made by the management  decline in performance
MEASURING RECOVERABLE AMOUNT  Recoverable amount:- is the higher of its fair value less costs of disposal and its value in use.
RECOGNISING AND MEASURING AN IMPAIRMENT LOSS  The value of the impairment loss is the difference between the carrying amount and its recoverable amount  An impairment loss shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Standard e.g IAS 16
CASH-GENERATING UNITS AND GOODWILL  If it is not possible to estimate the recoverable amount of the individual asset, an entity shall determine the recoverable amount of the cash- generating unit to which the asset belongs
continued Example 1. A mining entity owns a private railway to support its mining activities. The private railway could be sold only for scrap value and it does not generate cash inflows that are largely independent of the cash inflows from the other assets of the mine. 2. A bus company provides services under contract with a municipality that requires minimum service on each of five separate routes. Assets devoted to each route and the cash flows from each route can be identified separately. One of the routes operates at a significant loss.
continued Note:- o Cash-generating units shall be identified consistently from period to period for the same asset or types of assets, unless a change is justified. o For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash generating units. o A cash-generating unit to which goodwill has been allocated shall be tested for impairment annually
continued o The impairment loss shall be allocated to reduce the Carrying amount of the assets of the unit (group of units) in the following order: (a) first, on goodwill (b) then, to the other assets on pro rata basis o In allocating an impairment loss in accordance an entity shall not reduce the carrying amount of an asset below the Highest of: (a) its fair value less costs of disposal (b) its value in use ,and (c) zero.
REVERSING AN IMPAIRMENT LOSSAn entity shall assess at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. External sources of information:- The increase in asset values, Favorable change in technological, market, economic or legal environment in which the entity operates, the decrease in market interest rate or market rate of return on investment Internal sources of information:- Increase in performance, Favorable plan change made by the management ,
continued An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the Last impairment loss was recognized. Note:- a reversal of an impairment loss shall not exceed the carrying amount of the asset that was in the prior period A reversal of an impairment loss for an asset other than goodwill shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another
continued Reversing an impairment loss for a cash-generating unit:- A reversal of an impairment loss for a cash-generating unit shall be allocated to the assets of the unit, except for goodwill, pro rata with the carrying amounts of those assets. In allocating a reversal of an impairment loss for a cash-generating unit the carrying amount of an asset shall not be increased above the lower of: (a) its recoverable amount and (b) the carrying amount of the asset in the prior period Reversing an impairment loss for goodwill- An impairment loss recognized for goodwill shall not be reversed in a subsequent period.
Cost model example • 1 January 2011 you buy a machine – cost = $1 million – useful life = 10 years – depreciation method = straight-line – nil residual value • 31 December 2014 the recoverable amount = $300,000 • 31 December 2016 the recoverable amount of the machine = $800,000 © Michael JC Wells 2 3
Disclosure An entity shall disclose the following for each class of assets:  the amount of impairment losses recognized in profit or loss  the amount of reversals of impairment losses recognized in profit or loss  Explanation of the events and circumstances that contributed to the impairment loss or reversal
END OF IAS 36 Any Questions?

More Related Content

New ias 36

  • 2. Overview  OBJECTIVE  SCOPE  DEFINITIONS  IDENTIFYING AN ASSET THAT MAY BE IMPAIRED  MEASURING RECOVERABLE AMOUNT  RECOGNISING AND MEASURING AN IMPAIRMENT LOSS  CASH-GENERATING UNITS AND GOODWILL  REVERSING AN IMPAIRMENT LOSS  DISCLOSURE  Questions and Discussion
  • 3. OBJECTIVE  The objective of this Standard is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount
  • 4. SCOPE The standard shall be applied for all assets except IAS 20, IAS 12, IAS 19, IAS 40, IAS 41 IFRS 4, IFRS 5, IFRS 9, IFRS 15
  • 5. DEFINITIONS Carrying amount:- is the amount at which an asset is recognized after deducting any accumulated depreciation (amortization) and Accumulated impairment losses thereon.
  • 6. continued 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
  • 7. continued An impairment loss:- is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. The recoverable amount of an asset or a cash- generating unit:- is the higher of its fair value less costs of disposal and its value in use.
  • 8. IDENTIFYING AN ASSET THAT MAY BE IMPAIRED  An entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, The entity shall estimate the recoverable amount of the asset.
  • 9. continued o Irrespective of whether there is any indication of impairment, an entity shall also test:  an intangible asset with an indefinite useful life & goodwill acquired in a business combination Note:- Impairment test should be made before the end of the period at the same time on yearly basis
  • 10. continued Indications for Impairment:- External sources of information:-  The decline in asset values  significant change in technological, market, economic or legal environment in which the entity operates  the increase in market interest rate or market rate of return on investment
  • 11. continued Internal sources of information:-  obsolescence or physical damage  decline in performance  significant plan change made by the management  decline in performance
  • 12. MEASURING RECOVERABLE AMOUNT  Recoverable amount:- is the higher of its fair value less costs of disposal and its value in use.
  • 13. RECOGNISING AND MEASURING AN IMPAIRMENT LOSS  The value of the impairment loss is the difference between the carrying amount and its recoverable amount  An impairment loss shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Standard e.g IAS 16
  • 14. CASH-GENERATING UNITS AND GOODWILL  If it is not possible to estimate the recoverable amount of the individual asset, an entity shall determine the recoverable amount of the cash- generating unit to which the asset belongs
  • 15. continued Example 1. A mining entity owns a private railway to support its mining activities. The private railway could be sold only for scrap value and it does not generate cash inflows that are largely independent of the cash inflows from the other assets of the mine. 2. A bus company provides services under contract with a municipality that requires minimum service on each of five separate routes. Assets devoted to each route and the cash flows from each route can be identified separately. One of the routes operates at a significant loss.
  • 16. continued Note:- o Cash-generating units shall be identified consistently from period to period for the same asset or types of assets, unless a change is justified. o For the purpose of impairment testing, goodwill acquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer’s cash generating units. o A cash-generating unit to which goodwill has been allocated shall be tested for impairment annually
  • 17. continued o The impairment loss shall be allocated to reduce the Carrying amount of the assets of the unit (group of units) in the following order: (a) first, on goodwill (b) then, to the other assets on pro rata basis o In allocating an impairment loss in accordance an entity shall not reduce the carrying amount of an asset below the Highest of: (a) its fair value less costs of disposal (b) its value in use ,and (c) zero.
  • 18. REVERSING AN IMPAIRMENT LOSSAn entity shall assess at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. External sources of information:- The increase in asset values, Favorable change in technological, market, economic or legal environment in which the entity operates, the decrease in market interest rate or market rate of return on investment Internal sources of information:- Increase in performance, Favorable plan change made by the management ,
  • 19. continued An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the Last impairment loss was recognized. Note:- a reversal of an impairment loss shall not exceed the carrying amount of the asset that was in the prior period A reversal of an impairment loss for an asset other than goodwill shall be recognized immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another
  • 20. continued Reversing an impairment loss for a cash-generating unit:- A reversal of an impairment loss for a cash-generating unit shall be allocated to the assets of the unit, except for goodwill, pro rata with the carrying amounts of those assets. In allocating a reversal of an impairment loss for a cash-generating unit the carrying amount of an asset shall not be increased above the lower of: (a) its recoverable amount and (b) the carrying amount of the asset in the prior period Reversing an impairment loss for goodwill- An impairment loss recognized for goodwill shall not be reversed in a subsequent period.
  • 21. Cost model example • 1 January 2011 you buy a machine – cost = $1 million – useful life = 10 years – depreciation method = straight-line – nil residual value • 31 December 2014 the recoverable amount = $300,000 • 31 December 2016 the recoverable amount of the machine = $800,000 © Michael JC Wells 2 3
  • 22. Disclosure An entity shall disclose the following for each class of assets:  the amount of impairment losses recognized in profit or loss  the amount of reversals of impairment losses recognized in profit or loss  Explanation of the events and circumstances that contributed to the impairment loss or reversal
  • 23. END OF IAS 36 Any Questions?