Fair value less costs of disposal

IAS 36 How Impairment test

IAS 36 How Impairment test is all about this – When looking at the step-by-step IAS 36 impairment approach it comes down to the following broadly organised steps: IAS 36 How Impairment test

  • What?? – Determining the scope and structure of the impairment review, explained here,
  • If and when? – Determining if and when a quantitative impairment test is necessary, explained here,
  • IAS 36 How Impairment test or understanding the mechanics of the impairment test and how to recognise or reverse any impairment loss, if necessary. Which is explained in this section…

The objective of IAS 36 Impairment of assets is to outline the procedures that an entity applies to ensure that its assets’ carrying values are not … Read more

The step-by-step IAS 36 impairment approach

When looking at the step-by-step IAS 36 impairment approach it comes down to the following broadly organised steps:

  • What?? – Determining the scope and structure of the impairment review,
  • If and when? – Determining if and when a quantitative impairment test is necessary, jump to this part here
  • How? – Understanding the mechanics of the impairment test and how to recognise or reverse any impairment loss, if necessary, jump to this part here.

The objective of IAS 36 Impairment of assets is to outline the procedures that an entity applies to ensure that its assets’ carrying values are not stated above their recoverable amounts (the amounts to be recovered through use or sale of the assets). To accomplish this … Read more

Recoverable amount

Recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.

3 powerful capital maintenance concepts

3 powerful capital maintenance concepts – There are three (or two a matter of definition) concepts of capital: a financial concept of capital (nominal maintenance and purchasing power maintenance) and a physical concept of capital. Under the financial concept, capital is defined as the net assets or equity of the enterprise, while under the physical concept, capital is defined as the productive capacity of the enterprise expressed in some physical units of measurement, as for example units of output per day.

The selection of the appropriate concept of capital by an enterprise should be based on the needs of the users of its financial statements. So, the financial concept of capital should be and mostly is used by the financial … Read more

Impairment of intangible assets

Possible impairment of intangible assets has to be assessed on a periodical basis. Intangible assets are tested for impairment when there is indication that they might be impaired. Indicators of impairment include legal restrictions, business restructuring, development of new technology, economic changes, etc. Impairment of intangible assets

Impairment test for intangible assets is the same as that for a tangible fixed asset:

  1. comparing the carrying amount of the asset, and Impairment of intangible assets
  2. the higher of fair value (less cost to sell) and value in use. Impairment of intangible assets

If b) is lower than a) that difference is recognized as impairment. Impairment of intangible assets

Impairment test for goodwill is a little more complex. The goodwill is first … Read more

Diagnosed for importance decommissioning liability IFRS

Diagnosed for importance decommissioning liability IFRS – IAS 36 – Impact of a decommissioning liability in determining the recoverable amount of a Cash generating unit.

At a glance

Most liabilities are ignored when calculating recoverable amounts in impairment testing. However certain liabilities, such as decommissioning and restoration liabilities, cannot be separated from the related assets. This presents challenges when applying both the ‘fair value less costs of disposal’ approach and the ‘value in use’ approach. The IFRS Interpretations Diagnosed for importance decommissioning liability IFRS Committee (IC) considered how to apply the current guidance to a value in use calculation. The IC declined to take the issue on to the agenda as the guidance on value in use is clear, therefore neither an Interpretation nor an … Read more

Measurement basis

Measurement basis - An identified feature of an item being measured (for example, historical cost, fair value through profit or loss or OCI or fulfilment value).

Impairment Example

Impairment Example – Accounting example

Impairment of property, plant and equipment, intangible assets, and goodwill

The group assesses assets or groups of assets, called cash-generating units (CGUs), for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset or CGU may not be recoverable; for example, changes in the group’s business plans, changes in the group’s assumptions about commodity prices, low plant utilization, evidence of physical damage or, for oil and gas assets, significant downward revisions of estimated reserves or increases in estimated future development expenditure or decommissioning costs. If any such indication of impairment exists, the group makes an estimate of the asset’s or CGU’s recoverable amount. Individual assets are grouped into CGUs … Read more

Fair value less costs of disposal

Fair value less costs of disposal -Costs of disposal, other than already recognised as liabilities, are deducted in measuring fair value less costs of disposal.