Reversal of impairment losses

Fair value less costs to sell of assets held for sale may exceed the assets carrying amounts either at the initial classification date or on subsequent remeasurement under IFRS 5. In these circumstances, the entity may need to record a gain arising from the reversal of previous impairment losses but with the following conditions:

  • An impairment loss recorded under IAS 36 (prior to the held for sale classification) or under IFRS 5 (at or after the classification) has previously reduced the carrying amounts of the assets under review; Reversal of impairment losses
  • The potential gain does not exceed cumulative impairment losses previously recognised under IAS 36 or IFRS 5 (IFRS 5 22 (b));
  • The carrying amounts of assets
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Impairment testing cash generating unit with leases

A right-of-use asset will frequently be included in a cash generating unit to be tested for impairment. At initial recognition, the right-of-use-asset equals the recognised lease liability, plus any lease payments made at or before the commencement date, less any lease incentives received, plus any initial direct costs incurred by the lessee and an estimate of costs to be incurred by the lessee in dismantling and removing the underlying asset and restoring the site on which the leased asset is located. The most significant part of the right-of-use asset will often be the lease liability, which is the present value of the lease payments discounted at the interest rate implicit in the lease if this rate is … Read more

Natural disasters – Asset impairments

If an entity determines that the events resulting from a natural disaster have triggered impairment indicators, an impairment test must be performed in accordance with IAS 36 Impairment of Assets for the respective asset(s) and/or cash-generating unit(s). Indicators of impairment as a result of a natural disaster could include: Natural disasters – Asset impairments

  • Observable indications that the asset’s value has declined during the period significantly more than what would be expected as a result of the passage of time or normal use
  • Significant changes with an adverse effect on the entity have taken place during the period, in the technological, market, economic or legal environment in which the entity operates or in the market to which an
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Example impairment and revaluation of a building

On January 1, 2005 OwnPlus Inc. purchased a building for €2 million. Its estimated useful life at that date was 20 years and the company uses the straight-line depreciation method.

On December 31, 2009 the government embarked on a plan to construct a fly-over adjacent to the building and the related installation reduced the access to the building thereby decreasing the value of the building. TheProperty, plant and equipment Property, plant and equipment company estimated that it can sell the company for €1 million but it has to incur costs of €50,000. Alternatively, it if continues to use it the present value of the net cash flows the building will help in generating is €1.2 million.

The basic rule is to recognize impairment if carrying amount exceeds the … Read more

What are the disclosure requirements for impairments?

Impairments relate to the (potential) impairment of:

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Impairment of assets – Highlights

IAS 36 Impairment of assets applies to:

The standard requires an entity to recognise impairment when its assets are carried at more than their recoverable amount. The standard prescribes procedures that an entity has to apply to ensure assets are carried at no more than their recoverable amount as illustrated here.

In terms of IAS 36 at the end of each reporting period, the reporting entity is required to assess whether there is an indication that an asset may be impaired. A list of external and internal indicators of impairment are described by IAS 16. If there’s an indication that … Read more