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Scope exclusions
Inventories
Assets arising from construction contracts
Financial asset IAS 39
Investment property @ fair value
IAS 16
Other assets of standards with impairment
provisions e.g. financial instruments
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Impairment
Definition
A (sudden) loss in the value of an asset over andabove the systematic recognition of the loss of the
assets value through depreciation.
--Loss = recoverable amount < carrying value
--In net surplus or deficit
--After impairment adjust depreciation charge
--Recognize a liability if required by another standard
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Recoverable amount
Definition
Higher of
Fair value less costs to sell and value in use
Recoverable service amount
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Cash-generating assets
Definition
Assets held with the primary objective ofgenerating a commercial rate of return
Cash incidental
Indistinguishable
Consistency with for-profit entitiesMay not meet that objective every year
Primary purpose
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Non-cash-generating assets
Assets other than cash-generating assets.
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Discount rate
Pre-tax
Asset specific or surrogate
Time value of money
Risks specific to the assets for which the
cash flows have not been adjusted
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Other Key Terms
Carrying value of asset
Active market
Costs of disposal / selling
Fair value
Useful / Estimated life Exit Value
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Indicators of impairment
Cash-generating Units External Indicators / factors
1. Unexpected decline in market value
2. Significant adverse changes in technology,
market, economic or legal environment3. Increase in market rates of interest or rate of
return
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Indicators of impairment
Internal
1. Obsolete or physical damage
2. Significant adverse changes in entity and
way in which asset will be used
3. Economic performance worse than expected
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Indicators of impairment
Non-cash-generating External
1. Cessation (near) of demand for services
2. Significant adverse changes in technology,
market, economic or legal environment
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Indicators of impairment
Internal
1. Obsolete or physical damage2. Significant long term adverse changes in
entity and way in which asset will be used
3. Halt construction before finish
4. Service performance worse than expected
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Measuring recoverable amount
Fair value
Active market Binding arrangement
Value in use
Individual assets
Unless dependent on cash flows from otherassets or group of assets
Recoverable amount of cash-generating unit
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Intangible asset with an indefinite usefullife
Test annually for impairment
Irrespective of any indicator of impairment Test even if it belongs to a CGU where there has
been no significant changes
Most recent calculation of recoverable amount
exceeded carrying value by a substantial amount
Analysis of events and circumstances indicate
impairment is remote
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Flowcharts
Is an Asset Impaired?
How is an Impairment Loss Recognized?
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When do you test for impairment?
At each reporting date
If an indicator has been triggered. If no trigger, no further work required on
impairment
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Identify CGU to which an asset belongs
Assess individual asset first
If asset does not generate cash flowsindependently from other assets
Smallest group of assets which generatescash flows largely independent from otherassets or groups of assets
Consistency from period to period for thesame assets( unless change is justified)
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Impairment loss forCGU
Recoverable amount of CGU < carrying amount of
CGU Allocate loss to assets in unit on a pro-rata basis
Carrying amount of an asset shall not be20reduced
below the highest of:
Fair value less costs to sell
Value in use (if determinable)
Zero
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Reversal of impairment loss
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Only if indicators of impairment no longer
exists
Reverse only if there has been a change
in the estimates
Increase carrying amount to recoverable
amount Increase shall not exceed carrying amount
if no impairment existed
Adjust depreciation
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Disclosure
Criteria to distinguish between cash & non-cashImpairment losses and reversals per class of asset
And Also for each segment For each material loss:
Event & circumstances
Amount
Nature of asset or CGU
Basis used to determine FV
Discount rate used for value in use
Assumptions used (optional)
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Your Turn
Questions?
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THANK YOU
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