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
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
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. The 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.
Impairments relate to the (potential) impairment of:
- general (non-)current assets with many exceptions with similar rules in separate standards (mentioned separately hereafter) (IAS 36) – among others, PPE, Investment property at cost, Intangible assets, Goodwill, Investments in subsidiaries, associates and joint ventures at cost, Right-of-use assets at cost (lessee), Cash-generating units, Exploration and evaluation assets (mineral resources),
- financial assets (IFRS 9) – Financial assets at amortised cost, Financial assets at fair value through other comprehensive income, Contract assets, Receivable assets, Loans and receivables, Net investment in a lease/Underlying asset (lessor), Some loan commitments (at cost),
- Inventories (IAS 2),
- Incremental costs of obtaining a contract and costs
IAS 36 Impairment of assets applies to:
- property, plant and equipment;
- intangible assets;
- investments in entities measured at cost; and
- cash-generating units.
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