IAS 36– Impairment of Assets
Objective: To ensure that assets are carried at no more than their recoverable amount. IAS 36 applies to all assets except:
1. Inventories
2. Assets arising from constructions
3. Assets arising from deferred tax.
4. Assets arising from employee benefits.
5. Assets arising from Financial Instrument.
Recognition and Measurement
1. Investment property measured at fair value, biological assets measured at fair value less estimated cost to a point of sales.
2. Impairment loss to be recognized when the amount of asset, exceeds its recoverable amount.
3. Impairment loss recognize through income statement for assets carried at cost.
4. Recoverable amount will be the higher off: "assets net selling price" or "net value in use"
5. Value in Use: is the present value of estimated future cash flow expected to be arising from the continuing use of an asset and from its disposal at the end.
6. At each balance date, review assets to look for any indication that the assets may be impaired, if impairment is indicated calculate recoverable amount.
7. Intangibles with indefinite useful life must be tested for impairment at least annually.
8. If not possible to determine the recoverable amount for the individual assets then determine recoverable amount for the "assets cash generating unit"
9. Reversal of prior year impairment losses allowed in certain instances (not in good will).
The Differences and Similarities between US GAAP Law and IFRS
Similarities: both US GAAP and IFRS are
Significant Differences:
IFRS | US Law GAAP | |
Impairment testing is required when there is an indicator of impairment. Annual impairment testing is required for goodwill, and intangible assets that either are not yet available for use or have an indefinite useful life. This impairment test may be performed at any time during an annual reporting period provided that it is Performed at same time each year. | Like IFRS Impairment testing is required when there is an indicator of impairment. Like IFRS annual impairment testing is required for goodwill, and intangible assets that either are not yet available for use or have an indefinite useful life. This impairment test may be performed at any time during an annual reporting period provided that it is Performed at same time each year. | Impairment Testing |
Goodwill is allocated to cash generating units or groups that are expected to benefit from the entities in the business combination from which it arose. A cash generating units is the smallest group of assets that generates cash inflows from continuing use that largely are independent. | Unlike IFRS goodwill is allocated to reporting units that are expected to benefit from the business combination from which it arose. Unlike IFRS an allocated to reporting units is defined as an operation segment or one level below an operating segment. | Impairment of Goodwill |
Whenever possible an impairment test is performed for an individual asset. Otherwise assets are tested for impairment in a cash generating units | Like IFRS whenever possible an impairment test is performed for an individual asset. Otherwise assets are tested for impairment in assets group unlike IFRS. | Impairment for individual assets |
IFRS | US Law GAAP | |
An impairment loss is recognized if an assets cash generating unit carrying amount exceeds its recoverable amount. The recoverable amount is the greater off: 1. fair value less costs to sell 2. Value in use which is the net present value of future cash flows | Unlike IFRS an impairment loss is recognized for assets if the asset or if the group of assets carrying amount is less than the undiscounted cash flows of the asset or asset group. Unlike IFRS The impairment loss is calculated based on the fair value of the asset or asset group. | Recoverable Amount of an Assets: |
Estimates of future cash flow use in calculation of value are specific to the entity. | Like IFRS estimates of future cash flow use in calculation of value are specific to the entity. | Future cash flows |
Reversals of impairment are recognized, but not in respect of goodwill. | Unlike IFRS reversals of impairment are prohibited. | Reversals of Impairment |
An Impairment loss on a revalued asset is charged directly to "revaluation reserve" any excess is recognized in profit and loss. | Unlike IFRS the revaluation of property, plant, and equipment, and intangible assets is not permitted, therefore all impairment losses are recognized in profit or loss. | An Impairment Loss |
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