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1、Ch6: IMPAIRMENT OF ASSETS Exam Context A full question could appear on this topic. If this happens, it wouldbe most likely, part written, explaining your understanding of the concepts ofaccounting for impairments, together with a part covering calculations. Exam Overview1 Re-coverable amount 2 Impai
2、rment indicators 3 Cash-generating units4Recognition of impairment losses 5 After the impairment review1 Re-coverable amount1.3 Measuring the recoverable amount of the individual assetHigher value of Net selling price and value in use （a）The assets FV less cost to sell 销售净价=Net selling price (NRV, n
3、et offer)=The sale price of the asset -selling costs (sale transaction cost)Alternative 1: Market value basisAlternative 2: Estimates basisNote: Net selling price (NRV) should exclude selling costs relating to restructuring or reorganization expenses, or any cost that have already been recognized in
4、 the accounts as liabilities.Reasons: Restructuring or reorganization expenses is underling with IFRS 5 “Non-current assets held for sale and discontinued operations”Provision cost is not related to NRV. (because assumed assets have been sold )(b) value in use 使用价值/在用价值 PV of future estimated future
5、 net cash flows ( inflows minus outflows ) generated by the asset, including estimated net disposal value (if any ) at the end of its expected useful life.Excluding any cost that have already been recognized in the accounts as liabilities. E.g. Provision for dismantling and removing cost.( because t
6、hese costs do not generate cash flows)Example p.4.11.4 Recognition and measurement of an impairment loss for individual assets An impairment loss is the amount by which the carrying amount (i.e. balance sheet value) of an asset exceeds its recoverable amount. Notes: p.65/p.104/p.108-109Reversal of a
7、n impairment loss Note 1:The Impairment loss is charged first against the related revaluation surplus (Provision for impairment loss ) for the particular asset to extent that original revaluation surplus and any remainder as an expense in the income statement.Note 2:The After reducing an asset to it
8、s RA, the depreciation charge on the asset should then be based on its new carrying amount, its estimated residual value (if any) and its estimated remaining useful life.Note 3:The Reversal of an impairment loss is recognized to the extent that it increases the carrying amount of the tangible non-cu
9、rrent assets to what it would have been had the impairment not taken placeExample: PPE A , Acquisition:20X1/1/1C=180 000 , AD=30 000 , N=6yr. SL method , Revaluation basis20X1/12/31: Revaluation surplus =10 000 , 20X1/12/31: CA =180 000-30 000+10 000=160 000 , Presentation BS, PPE = 160 000 Revaluat
10、ion basis20X2/12/31:CA=160 000(160 000/5 =32 000)=128 000 , RA =30 000, Impairment loss=98 000DR. Impairment loss 88 000DR. Revaluation surplus 10 000 20X2/12/31: CR. Provision for Impairment loss 98 000 , Presentation BS,PPE= 30 000 , Recoverable Amount20X3/12/31: Reversal of Impairment loss CA=30
11、000 ( 30 000/4=7 500 ) = 22 500 RA =150 000 Reversal of Impairment loss =?If no Impairment of PPE , CA = 180 000180000/6 X3= 90 000 , AD =90 000DR. Provision for Impairment loss 98 000CR. Impairment loss 77 500 ( Reversal of Impairment loss )CR. AD 20 500(90 00030 00032 000-7500)20X3/12/31: Presenta
12、tion BS,PPE= 90 000 Carrying amount , Historical cost .Impairment indicators 1.2 Examples of events indicating impairments External sources- Significant decline in market value of the asset below that expected due to normal passage of time or normal use - Significant changes with an adverse effect o
13、n the entity in the technological, market, economic or legal environment in which the entity operates - Increased market interest rates or other market rates of return affecting discount rates and thus reducing value in use - Carrying amount of net assets of the entity exceeds market capitalization
14、Internal sources- Evidence of obsolescence or physical damage- Significant changes with an adverse effect on the entity (including the asset becoming idle, plans to discontinue or restructure an operation *-Internal evidence available that asset performance will be worse than expected. * Once the as
15、set meets the criteria to be classified as held for sale, it is excluded from the scope of IAS 36 and accounted for under IFRS 5.2 Cash-generating units (CGUs) Where it is not possible to estimate the recoverable amount of an individual asset, an entity determines the recoverable amount of the cash-generating unit to which it belongs. 2.1 Definition (IAS 36) Cash-generating unit a cash-generating unit is the smallest identifiable group of assets for which independent cash inflows can be identified and measured.Example: on a individual place (regi
