Impairments White Paper

Impairments White Paper 1 Oracle/Client Confidential – For internal use only

ORACLE APPLICATIONS WHITE PAPER IMPAIRMENTS Release 11i September 2007


Contributors

Name Position

Octavian-Nucu Modiga Senior Support Engineer, Fixed Assets Support, Bucharest

Change Record

Change Reference


Contents

INTRODUCTION ............................................................................................................................. 4

OBJECTIVE ............................................................................................................................................ 4 SCOPE...................................................................................................................................................... 4

BACKGROUND .................................................................................................................................... 4

DEFINITIONS .................................................................................................................................... 5

IMPAIRMENTS APPLICABILITY ..................................................................................... 6

THE BIG PICTURE ........................................................................................................................ 7

IMPAIRMENTS SETUP .............................................................................................................. 8

DEFINE CASH GENERATING UNITS .......................................................................................... 8

ASSIGN CASH GENERATING UNITS.......................................................................................... 9 SETUP IMPAIRMENT ACCOUNTS .............................................................................................. 11

IMPAIRMENTS WORKFLOW ........................................................................................... 12

IMPAIRMENT TRANSACTIONS ................................................................................................... 12 IMPAIRMENT ACCOUNTING METHODS ................................................................................ 20

IMPAIRMENT JOURNALS .............................................................................................................. 29

IMPAIRMENT REPORTS ....................................................................................................... 32

ASSET IMPAIRMENTS REPORT .................................................................................................. 32 LIST ASSETS BY CASH GENERATING UNIT ....................................................................... 33

LOADING IMPAIRMENTS DATA ................................................................................... 34


INTRODUCTION

Objective

The purpose of this document is to provide an overview of the Impairments feature in Oracle Assets. Impairment functionality is available from 11i, FA.P and rollup patch 4970145 and it enables users to calculate and account impairment losses when carrying amounts of the assets exceed their recoverable amount. This document will instruct users how to setup the Impairment functionality and how to use different Impairment methods. This document describes the solution design to meet the requirements of the International Accounting Standard (IAS) 36 Impairment of Assets as well as the Japanese Asset Impairment needs.

Scope

This paper will cover the functional and technical side of Impairments functionality. It will describe the Impairments terminology, the steps to setup the Impairments, how to perform Impairments transactions, different methods of Impairments and the current Impairment reports. Also will be presented the mandatory information for uploading Impairment data to the interface.

Background Impairments process consists in three separate programs: Upload Impairments, Process Impairments and Rollback Impairments. Upload Impairments will insert the Impairments details from WebAdi spreadsheets to the Interface table FA_IMPAIRMENTS. This can be done also with scripts from external data following the required data that needs to be inserted to this table. Post Impairments will generate the Impairment transactions to the assets while Rollback Impairments will remove the Impairments transactions for the assets.


DEFINITIONS

Impairments Definition

Impairment represents a loss of the assets that happens when carrying amount of the asset exceeds its recoverable amount. Impairments Loss

Impairment loss is the amount by which the carrying amount of the asset or a Cash Generating Unit exceeds its recoverable amount. The impairment loss is an expense in the income statement (unless it relates to a revalued asset where the value changes are recognized directly in equity).

Carrying Amount

Carrying amount represents the amount at which an asset is recognized in the balance sheet after deducting the accumulated depreciation and accumulated depreciation losses. Carrying amount of the asset is also known as NBV of the asset up to date. Recoverable Amount

Recoverable Amount represents the higher of the asset’s Fair Value less cost to sell (some time called Net Selling Price) and its Value in Use. Fair Value or Net Selling Price

Fair Value is the amount obtainable from sale of an asset in a bargained transaction between knowledgeable, willing parties. It can be considered as the market value of the asset. Value in Use

Value in Use is the discounted present value of the estimated future cash flows expected to arise from: - Continuing use of the asset and - Asset disposal at the end of its normal life Cash Generating Unit (CGU)

Cash Generating Unit is the smallest identifiable group of assets that: - Generates cash inflows from continuous use, and - That is largely independent of the cash inflows from other assets

or group of assets.


IMPAIRMENTS APPLICABILITY

IAS36 Impairments applies to all assets except: [IAS 36.2] - Inventories (see IAS 2) - Assets arising from construction contracts (see IAS 11) - Deferred tax assets (see IAS 12) - Assets arising from employee benefits (see IAS 19) - Financial assets (see IAS 39) - Investment property carried at fair value (see IAS 40) - Certain agricultural assets carried at fair value (see IAS 41) - Insurance contract assets (see IFRS 41) - Assets held for sale (see IFRS 5) Therefore, IAS 36 applies to (among other assets): - Land - Buildings - Machinery and Equipment - Investment Property carried at cost - Intangible assets - Goodwill - Investments in subsidiaries, associates and joint ventures - Assets carried at revalued amounts under IAS 16 and IAS 38


THE BIG PICTURE

Data can come to Impairment functionality of Oracle Assets via FA_IMPAIRMENTS table from the following sources: as upload of WebAdi spreadsheet file or from external sources directly to table. Once that the data is in the FA_IMPAIRMENTS table (it is uploaded to the interface), the user needs to review if it needs to be updated or deleted. If the data is ok then it is posted to the assets and the Impairments transaction is performed. Optionally the Impairments transaction can be reverted in the posting period through Rollback Impairments process.


IMPAIRMENTS SETUP

Define Cash Generating Units

The first step in setting up Impairments is to define the Cash Generating Units. The CGUs needs to be defined based on the cash inflow criteria for each unit. From Oracle Assets Navigator, select the navigation path: Setup > Asset System > Cash Generating Units

This navigation path will open the Define Cash Generating Units form, FAXSUCGU. Create Cash Generating Units

To create a Cash Generating Unit, you will have to do the following steps: 1. Select from Book LOV the book name for which you want

define the CGU. 2. Add the Impairment CGU by entering the Cash Generating Unit

name and Description. 3. Save the work.


Query Cash Generating Units

To query the existing CGUs of a specific book, do the following: 1. Select the book from Book LOV. 2. Place the cursor on the CGU level and use F11 – Ctrl+F11 to

query the existing CGU(s). You can inactivate a specific CGU by pressing Disable flag and saving the work. Then this CGU and its assets cannot be used for future Impairment transactions. Note: Cash Generating Units information is inserted and kept in the FA_CASH_GEN_UNITS table.

Assign Cash Generating Units

There are two ways of assigning Cash Generating Units: as manual assignment to each asset or as mass assignment using WebAdi functionality. Note: assigning Cash Generating Units represents an adjustment transaction that will add the value of CGU id in the FA_BOOKS.CASH_GENERATING_UNIT_ID column. Do NOT update this column since the transaction has to contain details in FA_TRANSACTION_HEADERS and FA_ADJUSTMENTS tables. Manual Assignment

To be able to create and process Impairment transactions, the defined Cash Generating Units need to be assigned to the assets. By manual assignment for each asset should be picked the Cash Generating Unit that it should be part of.


To manually assign the Cash Generating Unit to the existing assets, perform the following steps: 1. Go to Asset Workbench form by using the following navigation

path: Assets > Asset Workbench 2. Query for existing asset(s). 3. Press Books but ton and select the Book from LOV. 4. Go to Impairment tab and pick from LOV the previously defined

Cash Generating Unit. 5. Save the work. WebAdi CGUs Assignment

Cash Generating Units can be assigned using the WebAdi tool adapted for Impairment functionality.

To assign the Cash Generating Units to the existing assets, perform the following steps: 1. Go to the Assign Cash Generating Units spreadsheet by the next

path: Assets > Impairment > Assign Cash Generating Units Note: Don’t forget to select Enable Macros when spreadsheet will be loaded. 2. In the open spreadsheet enter the following data: Book: Select from LOV the existing book for which you want to assign the CGUs to its assets. This is a mandatory field that needs to be selected.


Asset Number: Select from LOV each asset number that you want to attach the Cash Generating Unit. This is a mandatory field since the CGUs needs to be added at the asset level. Cash Generating Unit: Select from LOV the Cash Generating Unit for each asset. This is a mandatory field also. 3. Upload the assignments to the assets by following the next path: From the main toolbar go Oracle > Upload and a form called Upload Parameters will be open. After confirming the parameters, you can press Upload button.

Setup Impairment Accounts Impairment transaction requires that the accounting information to be sent to General Ledger, so that Impairment Loss to be included in the Profit and Loss Account / Income Statement. There are two Impairment accounts: Impairment Expense and Accumulated Impairment.

To define the Impairment accounts, perform the following steps: 1. Go to Asset Categories form by the next path: Setup > Asset System > Asset Categories 2. Query for the existing Category Combination using F11 –

Ctrl+F11 search tool. 3. Place the cursor on one of the fields under General Ledger

Account’s tab and query for the book using again F11 – Ctrl+F11 search tool.

4. Enter the accounting combination for Impairment Expense and Accumulated Impairment fields.

5. Save the work.


IMPAIRMENTS WORKFLOW

The Impairments Workflow chapter will present the transactions that can be made with Impairments functionality and within the transactions will be showed the different accounting methods of using them.

Impairment Transactions

Overview of Impairment transactions

As Impairment Transactions will be considered the following: - Create Impairments; - Adjust/Update Impairments; - Post Impairments; - Rollback Impairments; - Delete Impairments; Impairment Statuses

Each Impairment line has a Status according to the transactions you perform for Impairments. The following table describes each Oracle Assets Impairment Status. Status

Definition

Set by

New New Impairments line created.

Created by Oracle Assets user when the Impairment is created or when Impairments data are uploaded.

Preview Impairments line status that is ready to be Previewed.

Created by Oracle Assets user when the Impairment is created or when Impairments data are uploaded.

Previewed Impairment status that shows that the line is ready for posting.

Set by Oracle Upload process through Process Impairments request.


Status

Definition

Set by

Post Intermediary status while posting the Impairments.

Set by Oracle Post process through Process Impairments request

Posted Status that shows that Impairments were successfully posted to the assets.


Posting Failed Impairment status that is used when Impairments failed to be posted to the assets.


Delete Intermediary status while Deleting the Impairments.

Set by Oracle Delete process through Process Impairments request

Deleted Impairment status that is used when Impairments are Rollbacked.

Set by Oracle Rollback process through Process Impairments request.

Running Allocation Intermediary status while uploading the Impairments Allocation.

Set by Oracle Update Allocation process through Process Impairments request.

Running Depreciation

Intermediary status while uploading the Impairments.


Depreciation Failed Impairments status that is used during Upload process when the Depreciation calculation fails.



Create Impairments

In order to create Impairments transactions, the following steps need to be performed:

1. Go to Create and Post Impairments form by the next path: Assets > Impairments > Create and Post 3. Press New Impairment button. 4. A Web ADI popup will be open that will ask if you want to open

this file. From the available options chose Open. 5. A new question will ask you whether if you want to open the file

with macros. Chose Enable Macros option. After this step the Impairments spreadsheet will be open.

6. Add the mandatory fields for header (Book, Impairment Name and Impairment Date) and Impairment detail information (Status, Cash Generating Unit / Asset Number, Net Selling Price, Value in Use, Impairment Loss, Goodwill and optionally Comments).

7. From the main menu go to Oracle > Upload for uploading the Preview/New impairments.


8. Process Impairments request will be fired. Verify that it

successfully completes.

*Note: When you upload the Impairments in status Preview, the new status generated will be Previewed.

*Attention. Impairment are Amortized transactions and accordingly to Oracle Assets standard functionality you cannot perform anymore an Expensed transaction once that you performed an Amortized one but only Amortized transactions. For Impairments Amortization Start Date will be the same as Impairment Date. *Note that Impairments can be created in two ways: 1. For each asset by entering/selecting the Asset Number from LOV

and the Impairments information will be provided for each asset.


2. To the Cash Generating Unit level by entering this information. For this situation the Impairment Expense is calculated and distributed proportionally to the assets of Cash Generating Unit accordingly to their Cost and NBV.

Update Impairments

Reviewing the Impairments is necessary to check their information before posting. If the Impairments were created with status New then it is necessary to update them with status Preview in order to be able to post them. Only Impairments that are Previewed can be posted. Also with Update Impairments options you can change other data like Impairment Data, Net Selling Price, Value in Use, Impairment Loss or Comments information. In order to Update the Impairments perform the following steps: 1. Go to Create and Post Impairments form by the next path: Assets > Impairments > Create and Post 2. Enter the query criteria: Book, Cash-Generating Unit,

Impairment Name, Asset Number, Impairment Date and Status. Press Go button.

3. For the row that you need to alter, press Update Impairment button.

4. A Web ADI popup will be open that will ask if you want to open this file. From the available options chose Open.

5. A new question will ask you whether if you want to open the file with macros. Chose Enable Macros option. After this step the Impairments spreadsheet will be open.

6. Change the data that you need. 7. From the main menu go to Oracle > Upload for uploading the

changes to the interface. 8. Process Impairments request will be fired. Verify that it

successfully completes. Post Impairments

After the Impairments were reviewed and when you want to post them to the system, the following steps needs to be done: 1. Go to Create and Post Impairments form by the next path: Assets > Impairments > Create and Post 2. Enter the query criteria: Book, Cash-Generating Unit,


3. Use the Select flag to check the Impairments and then press Post button.

4. You will be asked to confirm the posting. Press Yes button if you want to Post the Impairment(s).


5. Process Impairments request will be fired. Verify that it successfully completes.

Rollback Impairments

An impairment transaction can be rollbacked only in the period that it is posted. To rollback the Impairments the following steps need to be performed: 1. Go to Create and Post Impairments form by the next path: Assets > Impairments > Create and Post 2. Enter the query criteria: Book, Cash-Generating Unit,


3. Use the Select flag to check the Impairments and then press Rollback button.

4. You will be asked to confirm the Rollback. Press Yes button if you want to Rollback the Impairment(s).

5. Process Impairments request will be fired. Verify that it successfully completes.

*Note that once that you rollback an Impairment transaction, that transaction cannot be posted again. Delete Impairments

To delete the Impairments, do the next steps: 1. Go to Create and Post Impairments form by the next path: Assets > Impairments > Create and Post 2. Enter the query criteria: Book, Cash-Generating Unit,


3. Use the Select flag to check the Impairments and then press Delete button.

4. You will be asked to confirm the deletion. Press Yes button if you want to Delete the Impairment(s).

Process Impairments request will be fired. Verify that it successfully completes. View Impairments

Impairment information regarding YTD Impairment and Accumulated Impairment can be seen to each asset in Asset Workbench form. To be able to see this information perform the following steps: 1. Go to Asset Workbench form by the next path:


Assets > Asset Workbench 2. Enter the query criteria for the impaired asset and press Find

button. 3. Press Books button and select the Book name from LOV. 4. Go to the Impairment tab. This will show the following

Impairments information of this asset: Accumulated Impairment, YTD Impairment and Cash Generating Unit that was previously attached.

How Impairment Loss is calculated

As was previously defined, Impairments occurs when: Carrying amount (or NBV) > higher (Value in Use, Net Selling Price) Based on this, the Impairment Expense or Impairment Loss is calculated as can be seen in the next picture.

IMPAIRMEN LOSS = NBV – HIGHER (FAIR VALUE; VALUE IN USE)

Fair Value

Value in Use

Cost

Impairment Expense

Carrying amount/NBV

Depreciation reserve


*Note that the calculation formula is the same no matter the level (asset or Cash Generating Unit) on which it is made. If the Impairment transaction is performed at the Cash Generating Unit level, then the NBV, Fair Value (or Net Selling Price), Value in Use and Impairment Loss is calculated as sum of the assets’ values that belongs to this Cash Generating Unit. Then Impairment Loss is distributed to each asset upon NBV of each asset.

Attention: NBV includes the deprecia tion amount of the period where Impairment Date is entered.

*Note: There are two more factors that influence the calculation of Carrying Amount (NBV) than Depreciation Reserve and they are: - Salvage Value - Previous Impairment Expense (Accumulated Impairment ) So NBV calculation formula looks like: NBV = Cost – Salvage Value - Depreciation Reserve - Accumulated Impairment

When Revaluation Reserve occurred for an asset, the Impairment Loss calculated is decreased with this Revaluation Reserve amount. The resulted amount will be the Impairment Loss Expensed.


Impairment Accounting Methods

There are several methods of handling the Impairments calculations and transactions that can be used accordingly to the law and business requirements. These methods are: 1. Calculate Impairment Loss using Fair Value (Net Selling Price)

or Value in Use for the asset. 2. Calculate Impairment Loss using both Fair Value (Net Selling

Price) and Value in Use for the asset. 3. Using known value of Impairment Loss. 4. Reversing the Impairment Loss in a future period. *Note that for all the methods, except the third one, Impairment Loss is calculated as the above formula. Initial data for all the Impairments transactions: A. Asset Addition Asset Setup Item

Asset Setup Information

Book Type Code TAVI CORP 01 Asset Numbers 103762, 103763, 103764, 103766 Method STL 3Y Cost 5000 Addition Period FEB-2001 DPIS 01-JAN-2001 Prorate Date 01-JAN-2001 Depreciate Y Divide Depreciation Evenly Depreciation has been run until MAY-05. B. Current Asset Data Asset Item

Asset Information

Cost 5000 Depreciation Reserve 555.56 Monthly Depreciation 138.89


Calculate Impairment Loss using Fair Value (Net Selling Price) or Value in Use for the asset

This method contains two ways of handling it: either uses the Fair Value (Net Selling Price) or either uses the Value in Use when entering the Impairment transaction. The method consists on the following transaction details and calculations: A. Using Fair Value (Net Selling Price) Impairment transaction Impairment Item

Impairment Value

Book TAVI CORP 01 Impairment Name IAS 36 Impairment Impairment Date 01-May-2001 Status Preview Asset Number 103762 Fair Value (Net Selling Price) 3000 The impairment line is uploaded to the interface and posted to the asset. Impairment Calculations Carrying Amount (NBV) = Cost – (Acc Deprn + Current Period Depreciation) – Previously Impairment Expense = 5000 – 694.45 –0 = 4305.55 Carrying Amount > Net Selling Price and therefore Impairment Expense is calculated as: Impairment Expense = Carrying amount – Net Selling Price = 4305.55 – 3000 = 1305.55 Adjusted Cost will be equal with Net Selling Price (3000) and will depreciate over the remaining life of the asset. Monthly Depreciation = Adjusted Cost / Remaining life in years = 3000 / 31 = 96.77


B. Using Fair Value Impairment transaction Impairment Item

Impairment Value

Book TAVI CORP 01 Impairment Name IAS 36 Impairment Impairment Date 01-May-2001 Status Preview Asset Number 103763 Value in Use 3000 The impairment line is uploaded to the interface and posted to the asset. Impairment Calculations Carrying Amount (NBV) = Cost – (Acc Deprn + Current Period Depreciation) – Previously Impairment Expense = 5000 – 694.45 –0 = 4305.55 Carrying Amount > Value in Use and therefore Impairment Expense is calculated as: Impairment Expense = Carrying amount – Value in Use = 4305.55 – 3000 = 1305.55 Adjusted Cost will be equal with Value in Use (3000) and will depreciate over the remaining life of the asset. Monthly Depreciation = Adjusted Cost / Remaining life in years = 3000 / 31 = 96.77


Calculate Impairment Loss using both Fair Value (Net Selling Price) and Value in Use for the asset

As the name tells, this method applies when you are using in the same time the Fair Value and the Value in Use for the asset or for the Cash Generating Unit. The method consists on the following transaction details and calculations: Impairment transaction

Impairment Item

Impairment Value

Book TAVI CORP 01 Impairment Name IAS 36 Impairment Impairment Date 01-May-2001 Status Preview Asset Number 103766 Value in Use 2800 Net Selling Price 3500 The impairment line is uploaded to the interface and posted to the asset. Impairment Calculations Carrying Amount = Cost – (Acc Deprn + Current Period Deprn) – Previously Impairment Expense = 5000 – 694.45 –0 = 4305.55 Carrying amount > Max (Value in Use, Net Selling Price) and therefore the Impairment Expense is calculated as: Impairment Expense = Carrying amount – Net Selling Price = 4305.55 – 3500 = 805.55 Adjusted Cost will be equal with Max (Value in Use, Net Selling Price) = 3500 and will depreciate over the remaining life of the asset. Monthly Depreciation = Adjusted Cost / Remaining life in years = 3500 / 31 = 112.9


Using known value of Impairment Loss

Using this method means that you already know Impairment Loss amount and you want to use it directly without the system to calculate it. The method consists on the following transaction details and calculations: Impairment transaction Impairment Item

Impairment Value

Book TAVI CORP 01 Impairment Name IAS 36 Impairment Impairment Date 01-May-2001 Status Preview Asset Number 103764 Impairment Expense 1000 The impairment line is uploaded to the interface and posted to the asset. Impairment Calculations Adjusted Cost = Cost – (Acc Deprn + Current Period Deprn) – Impairment Loss = 5000 – 694.45 – 1000 = 3305.55 Monthly Depreciation = Adjusted Cost / Remaining life in years = 3305.55 / 31 = 106.63


Reversing the Impairment Loss in a future period

There are two ways of reversing the Impairment transaction: - In the transaction period. For this situation the Impairment can be

rollback as was shown to the Transaction Types chapter. - In the future period when it is find out that the Value in Use

and/or Net Selling Price have a different value. Reversing the Impairment in the future period can be made by two methods: 1. Correcting a previous Impairment transaction that was by

mistake added to the asset 2. Reverse the previous Impairment by Actualizing the asset

information in the future current period as result of the change in Value in Use and/or Net Selling Price

Current Asset Data before the reversal Asset Item

Asset Information

Current Period Counter AUG-2001 Asset Numbers 103762, 103763 Cost 5000 Depreciation Reserve 984.76 Monthly Depreciation 96.77 Previous Impairment Expense 1305.55 Carrying Amount (NBV) 2709.69

1. Correcting previous Impairment transaction With this method we want to remove the effects of the previous Impairment transaction and Depreciation to be calculated from now on, as an Impairment transaction has never take place. At the end of the asset life, Depreciation Reserve should have the same value as the Cost of the asset. So, in order to be able to reverse this transaction we need to look back in time to the moment when the first Impairment transaction took place. Will be necessary to calculate the NBV that would have been at that Impairment Date if the Impairment wouldn’t be performed. For this example, at 01-May-2001 Value in Use and Net Selling Price would have been 4305.5 (5000 – 5*138.89). Therefore it is necessary to perform a backdated amortized adjustment with this date and with the Value in Use and Net Selling Price of 4305.5 or with the Impairment Expense amount of <1305.55>.


In this example will be used Value in Use and Net Selling Price. Impairment transaction Impairment Item

Impairment Value

Book TAVI CORP 01 Impairment Name IAS 36 Impairment Reversal Impairment Date 01-May-2001 Status Preview Asset Number 103762 Value in Use / Net Selling Price 4305.5 The impairment line is uploaded to the interface and posted to the asset. Impairment Calculations Carrying Amount (NBV) = Cost – (Acc Deprn + Current Period Deprn) – Previously Impairment Expense = 5000 – 5*138.89 - 1305.55 = 3000 Carrying amount < Max (Value in Use, Net Selling Price) and therefore the Impairment Expense is calculated as: Impairment Expense = Carrying amount – Value in Use = 3000 – 4305.55 = - 1305.55 Depreciation Catch-up = 3*138.89 – 3*96.77 = 416.67 – 290.31 = 126.36 Adjusted Cost = Cost – (Acc Deprn + Current Period Deprn) – Impairment Loss = 5000 – (984.76 + 126.36) - 1305.55 – (- 1305.55) = 3888.89 Depreciation will be calculated from now on as Adjusted cost over the remaining life. Monthly Depreciation = 3888.89 / 28 = 138.89


2. Reverse previous Impairment by actualizing the asset data starting from the current period

*Note: This method can be used also when it is needed to decrease the Impairment effect of a previous Impairment transaction and when the Fair Value / Value in Use of the asset came back to the residual value in the current period due to economic changes the same as it wouldn’t be Impaired. This actualization is a response of the economic changes regarding the Fair Value and other factors that might impact the assets and has as result partially/totally decrease of a previous Impairment effects. Due to the economic changes (in our example), the Value in Use and/or Fair Value of the asset are considered to be as they would not have been impaired before. That means that their values for period AUG-2001 will be equal with 3888.89 (5000 – 8 * 138.89). The same effect will be also if using directly the Impairment Loss amount of <1305.55 > with the Impairment Date within AUG-2001 period. In this example will be used Value in Use and Net Selling Price. Impairment transaction Impairment Item

Impairment Value

Book TAVI CORP 01 Impairment Name IAS 36 Impairment Reversal Impairment Date 01-Aug-2001 Status Preview Asset Number 103763 Value in Use / Net Selling Price 3888.89 The impairment line is uploaded to the interface and posted to the asset. Impairment Calculations Carrying amount (NBV) = Cost – (Acc Deprn + Current Period Deprn) – Previously Impairment Expense = 5000 - 984.76 - 1305.55 = 2709.69 Carrying amount < Max (Value in Use, Net Selling Price) and therefore the Impairment Expense is calculated as:


Impairment Expense = Carrying amount – Value in Use = 2709.69 – 3888.89 = -1179.2 Depreciation will be calculated from now on as Adjusted cost (Value in Use) over the remaining life. Monthly Depreciation = 3888.89 / 28 = 138.89


Impairment Journals

Under this chapter will be presented the transactions when Impairment journals will be generated and which they are. Also will be presented the transactions that are not supposed to generate Impairment. Impairment Addition

There are several situations when Impairment Additions Journals are generated: A. Regular Impairments (when no previous Revaluation Reserve

amounts exists). The journals for this situation when an example Impairment Loss of 1000 occurred are as follows: Dr. Impairment Expense 1000 Cr. Accumulated Impairment 1000 B. Impairment transactions that occurs after a Revaluation

transaction that generated Revaluation Reserve amount. Taking the example of Impairment Loss of 1000 will be considered two situations: - When Revaluation Reserve is less than Impairment Loss. The

example amount for Revaluation Reserve is 800 and then the accounting journals are:

Dr. Revaluation Reserve 800 Dr. Impairment Expense 200 Cr. Accumulated Impairment 1000 - When Revaluation Reserve is higher than Impairment Loss. For

this example will be taken a Revaluation Reserve amount of 3500. The journals are:

Dr. Revaluation Reserve 1000 Dr. Impairment Expense 0 Cr. Accumulated Impairment 1000


Adjustment, Transfers and Reclassification transactions

If these transactions are performed either before or either after the Impairments transactions they will not generate any Impairment journal but only their regular journals. Revaluation transaction after Impairment

In order to see the accounting journals as result of revaluation transaction that is performed after an Impairment transaction, will be considered the following asset financial information. Asset Item

Amount

Cost 10000 Depreciation Reserve 3000 Impairment Reserve 500 A revaluation transaction is performed having the index of 20%. The amounts calculated as result of this transaction are: Asset Item

Amount

Cost 12000 Depreciation Reserve 3600 Revaluation Reserve 1400 The journals are: Dr. Revaluation Cost 1500 Cr. Depreciation Reserve 600 Cr. Revaluation Reserve 900 Dr. Impairment Reserve 500 Cr. Revaluation Reserve 500 Retirement of an asset that was Impairment

Asset financial information before retirement is: Asset Item

Amount

Cost 10000 Depreciation Reserve 3000 Impairment Reserve 500


Retirement transaction is performed and the journals are as follows: Dr. Depreciation Reserve 3000 Dr. Impairment Reserve 500 Dr. NBV Retired 6500

Cr. Asset Cost 10000


IMPAIRMENT REPORTS

There are two Impairment reports that became available and will have to be used. They are: - Asset Impairment Report and - List Assets by Cash Generating Unit. Asset Impairment Report is automatically fired when Impairments are uploaded to the interface or when they are posted.

Asset Impairments Report

Use this report to see all the Impairment transactions of the period. When the report is fired when the Impairments are uploaded and posted it contains only the data of the uploaded / posted Impairment but not the other Impairment data from other transaction. Therefore, in order to see all the data of Impairment transactions of the period, you will have to run this report separately. The report shows the assets that had Impairment transactions in the selected period, assets that are grouped under their Cash Generating Units. You must enter a Book, Set of Books Currency and Period when you request this report. Optionally you can enter Impairment and Cash Generating Unit values.

Selected Headings

Cost: The asset cost at the date of Impairment transaction. Net Book Value: The amount that is calculated at the date of Impairment transaction. Note that it contains the result of Depreciation amount for the period when Impairment transaction occurred. Net Selling Price: The amount that was used (if any) for Net Selling Price in the Impairments transaction for the asset. Value in Use: The amount that was used (if any) for Value in Use in the Impairments transaction for the asset. Impairment Loss: The amount of Impairment loss that was either calculated based on Net Selling Price and/or Value in Use or either that was manually entered in the Impairment transaction.


List Assets By Cash Generating Unit

Use this report to review up to date the assets information to each Cash Generating Unit level. With this report you can review the Cash Generating Units and their assets before and after the Impairment transactions. You can decide, for example, if it is necessary to perform new Impairments transactions at the asset or Cash Generating Unit level. Also you can see the Impairment information regarding YTD Impairment and Impairment reserve. You must enter Book and Set of Books when you request this report. Optionally you can enter Cash Generating Unit and Asset Number information.

Selected Headings

Cost: The current asset/CGU cost. Net Book Value: The current NBV in the moment when the report is run. Accumulated Impairment: The current value of Accumulated Impairment for the asset/CGU. YTD Impairment: The current value of YTD Impairment for the asset/CGU.


LOADING IMPAIRMENTS DATA

Impairment transactions can be loaded to the interface table FA_IMPAIRMENTS. The usage column in the following table indicates whether a field is required, optional or system generated.

Column name

Type

Description

Usage

IMPAIRMENT_ID NUMBER(15) The system-generated impairment identification number.

System-generated

IMPAIRMENT_NAME VARCHAR2(30) The name of the Impairment transaction.

Required

DESCRIPTION VARCHAR2(240) The description of the Impairment transaction

Optional

REQUEST_ID NUMBER(15) System-generated request id when impairment line was uploaded, posted, adjusted, rollbacked or deleted.

System-generated

STATUS VARCHAR2(30) Current Impairment status. You can upload impairments only with New or Preview status.

Required

BOOK_TYPE_CODE VARCHAR2(15) Use the column for the book that will receive the Impairment transaction.

Required

CASH_GENERATING_UNIT_ID

NUMBER(15) The identification number for Cash Generating Unit. If you enter the value for this column then you cannot enter the Asset_Id information.

Conditionally required.

ASSET_ID NUMBER The identification number for the Asset. If using this column then Cash_Generating_Unit_Id shouldn’t be used.


NET_BOOK_VALUE NUMBER System-generated amount for Net Book Value used as reference in Impairment transaction.

System-generated

NET_SELLING_PRICE NUMBER The value entered for Net Selling Price of Asset/CGU. You can use this column and/or Value_In_Use or Impairment_Amount.



Column name

Type

Description

Usage

VALUE_IN_USE NUMBER The value entered for Value in Use of Asset/CGU. You can use this column and/or Net_Selling Price or Impairment_Amount.


GOODWILL_ASSET_ID NUMBER(15) The system-generated asset id for the impairments that use Goodwill_Amount

System-generated

GOODWILL_AMOUNT NUMBER The entered Goodwill amount for the Asset/CGU.

Optional.

USER_DATE DATE The extra date that the user can use as reference for the impairment transaction.

Optional

IMPAIRMENT_DATE DATE The Impairment Date to be used in the transaction.

Required

PERIOD_COUNTER_IMPAIRED

NUMBER(15) The system-generated period counter of the impairment transaction.

System-generated

IMPAIRMENT_AMOUNT

NUMBER The Impairment expense amount for Asset/CGU. If used then Net_Selling_Price and Value_In_Use shouldn’t be used.


DATE_INEFFECTIVE DATE The system-generated date in the moment when the impairment is deleted.

System-generated

CREATION_DATE DATE Standard who columns. The date when Impairment was created.

System-generated

CREATED_BY NUMBER(15) Standard who columns. Typically the user_id of the person that created the Impairment.

System-generated

LAST_UPDATE_DATE DATE Standard who columns. This date corresponds to the date a user updated the Impairment transaction.

System-generated

LAST_UPDATED_BY NUMBER(15) Standard who columns. The user_id of the person that updated the transaction.

System-generated

LAST_UPDATE_LOGIN NUMBER(15) Standard who columns. The user_id of the last person that updated the transaction.

System-generated

Impairments White Paper

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Transcript of Impairments White Paper