9825041

1
Impairment of Non-Financial
Assets
IAS 36
2
What will you learn?
By completing this module,
you will be able to:

1) Identify the level of impairment
testing
2) Identify when to test for
impairment
3) Describe the sequence of
impairment testing
4) Describe how to measure
recoverable amount
5) Describe how to measure and
recognise an impairment loss
3
2012 KPMG AS, registered in Norway, is a subsidiary of KPMG Europe LLP and a member firm of the KPMG network of independent member
firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.
Scope excludes items under other standards
Inventories IAS 2
Construction contract assets IAS 11
Deferred tax assets IAS 12
Financial assets in IAS 39 IAS 39
Employee benefit assets IAS 19
Investment property at fair value IAS 40
Biological assets at fair value less costs to sell IAS 41
Insurance contracts: deferred acquisition costs and intangible assets
Non-current assets held for sale IFRS 5
4
Agenda
Level of impairment testing
When to test for impairment
Sequence of impairment testing
Measure recoverable amount
Measure impairment loss
The closing

5
Identify the level of impairment testing
Individual asset
whenever possible
Otherwise by
cash-generating unit
6
Cash-generating unit: Judgement required
If active market for
the output of an asset group, then
must be a separate CGU
Consider how management
monitors operations / decisions
are made
Smallest identifiable group of
assets with largely independent
cash INFLOWS
CGU should remain consistent
each period unless change is
justified
7
A question for you: CGUs
Management of Lila-Cosmetics has suggested that it
has only one CGU
Management reasons that although they have two
distinct product lines sold to different customers, all
cosmetics are produced in the same factory using the
same robots and other equipment
Do you agree with management?
8
Agenda
Identify level of impairment testing
Sequence and level of testing
The closing

9
Frequency of testing depends on the asset
If indicator of impairment
Everything else
Mandatory annual testing
+
If indicator of impairment
Goodwill,
Indefinite-lived intangible,
Intangible not yet ready
Any time during
the year, but
same time each
year
10
Example indicators of impairment
External sources
Internal sources
Market cap
<
Book values
Planned
disposal /
restructuring
Increased
interest
rates
Performance
of assets
declining
Technological,
market, legal
environment
Obsolescence
or physical
damage
Change in
use of asset
Significant
decline in
market value
11
No need to do annual test if
Facts and circumstances dont
suggest a different result
Most recent recoverable amount
significantly > carrying amount
CGU did not change substantially
No indicator of impairment
12
A question for you: When to test
A documentary on the effects of energy enriched food
aired on Lilas independent TV station, Lila-Truth
Since then sales of Lila-Energys new energy enriched
food line Power-Up have decreased
Management believes its just panic mongering
13
Agenda
The closing

14
Watch out for
Goodwill relates to
multiple CGUs
=
Corporate assets
15
Goodwill testing in two steps
Top-down testing Bottom-up testing
16
Corporate asset testing may be in two steps
A
l
l
o
c
a
t
e

o
n

a

r
e
a
s
o
n
a
b
l
e

a
n
d

c
o
n
s
i
s
t
e
n
t

b
a
s
i
s
?

Bottom up
testing
Top down
testing
17
A question for you: Corporate assets
Lila-Tech controls the communication satellite with
Earth
All of Lila-Healths communication is through the
satellite
Management believes that the satellite is a corporate
asset
18
Agenda
The closing

19
What is recoverable amount?
The greater of VIU and FVLCTS
The greater of VIU and NRV
The lower of FVLCTS and VIU
Accounting policy choice between VIU and FVLCTS
VIU = value in use
NRV = net realisable value
FVLCTS = fair value less costs to sell
20
Fair value less cost to sell
Binding sale agreement
Current bid price
Best information
Based on best available evidence Assumes hypothetical sale to
market participant
Less costs of disposal (excluding
costs that are already liabilities)
21
Entity-specific factors not included
FVLCTS: Best information available
Reflects markets assessment of
costs / benefits of future actions
Reasonable and reliable method Valuation techniques
22
FVLCTS: Control premium
Premium for potential bad
governance
Premium for efficiencies Premium for synergies

23
Value in use
From continuing use of asset
Managements best estimate
Reasonable and supportable
assumptions specific to CGU
Ignore financing cash flows
24
Adjusted for risks specific to the
entity
VIU: Composition of cash flows
Terminal value projections based
on steady or declining growth rate
Budgeted forecasts short term
projection and terminal value
From asset in its current condition
25
A question for you: Transfer pricing
Lila-Timber sells wood chips to Lila-Cosmetics for
L$ 50 per kilo. Lila-Cosmetics uses the wood chips in its
cosmetics
Lila-Timber could sell the wood chips on the open
market for L$ 70 per kilo
Lila-Timber and Lila-Cosmetics are separate CGUs for
the purpose of the Lila-Tech consolidated financial
statements
What kilo price should be used in calculating:
the VIU of Lila-Timber?
the VIU of Lila-Cosmetics?
Lila-
Timber
Lila-
Cosmetics
L$50
L$70

Open
market
26
Watch out for disclosure
requirements
VIU: Pre-tax vs post-tax
No gross up of post-tax rate
to pre-tax
But post-tax rate may be used if
cash flows are post-tax
In theory pre-tax cash flows and
pre-tax rate
27
Estimate discount rate using
WACC formula
VIU: Discount rates
Rarely observable directly
from market
and risks specific to asset / CGU Current market assessment of time
value of money
28
A question for you: Discount rate (1)
Lila-Innovation is calculating VIU for its CGU
Lila-Innovations main clients are domiciled on Earth
For the determination of its discount rate,
Lila-Innovation is using the WACC of Lila-Tech
29
Consistency
Cash Flows
Discount rate
If CF is adjusted for
certain risks
DR should not
reflect these risks
If post-tax cash
flows are used
Post-tax DR is used
Foreign currency
cash flows
DR appropriate for
foreign currency
30
Reasonableness tests: FVLCTS
Check for control premiums and
corroborate
or earnings multiples Compare to market
capitalisation
31
Reasonableness tests: VIU
or earnings multiples
Compare against market
capitalisation
Perform a sensitivity analysis on
key cash flow assumptions
Enterprise Value reconciliation
32
A question for you:
Measure recoverable amount (1)
Lila-Energy is performing its annual impairment tests on
CGUs and its goodwill
There are no indicators of impairment
The calculated VIU is higher than the carrying amount;
however, FVLCTS is lower
Is there an impairment or does management have to
perform more tests?
33
A question for you:
Measure recoverable amount (2)
Lila-Cosmetics has performed its impairment test and
calculated the following amounts:
Fair value less cost to sell = L$ 500
Value in use = L$ 590
What is the recoverable amount?
34
Agenda
The closing

35
Calculating the impairment loss
An impairment exists
when recoverable amount
is < carrying amount
36
Carrying amount
the way recoverable amount is
determined
should be determined
consistent with
Carrying amount of a CGU
37
Allocating an impairment loss
Step-by-step approach
Test assets / CGUs for impairment
Recognise impairment loss
First allocate to goodwill
Availability of adequate technical, financial, other resources
Other assets in CGU on pro rata basis
38
A question for you: Measure the impairment loss
Lila-Energy has performed its annual impairment test
and calculated the following amounts:
FVLCTS = 500; VIU = 590
Carrying amount of the CGU is 610
What is the impairment loss?
39
Agenda
The closing

40
41
What is the best definition of VIU?
The market quote
The assets carrying amount in the financial statements
The discounted present value of future cash flows arising from use of
the asset and from its disposal at the end of its useful life
The higher of an assets FVLCTS and its FV
42
Which statements are true?
In the calculation of VIU the cash flows from the
disposal of the asset are included
In the calculation of VIU cash flows from tax payments
and returns are included
In the calculation of VIU cash flows from
financial assets are included
In the calculation of VIU the cash flows from the
sale of assets produced by the asset are included
43
The discount rate takes into account risks for which
the future cash flows have been adjusted
The discount rate takes into account managements intention
The discount rate takes into account the risks specific
to the asset being tested
The discount rate takes into account the time value of money
44
What is the best definition of a CGU?
Any grouping of assets that generates cash flows
A group of assets that is reported to management in combination
The smallest group of assets that generates independent cash
inflows from continuing use
The smallest operating segment
45
Impairment losses are allocated pro rata to all assets of a CGU
An impairment loss exists when FVLCTS > carrying amount of CGU
An impairment loss recognised on goodwill is never reversed.
An entity has to apply its accounting policy choice
of VIU or FVLCTS consistently
46
1) Impairment is tested at the
individual asset level whenever
possible; otherwise on a CGU
level
2) Goodwill is allocated to CGUs at a
level not greater than an operating
segment (pre-aggregation)
3) Recoverable amount is the higher
of FVLCTS and VIU
4) An impairment loss is recognised
when recoverable amount
< carrying amount
5) Extensive disclosures required
Thank you!
2012 KPMG AS, registered in Norway, is a
subsidiary of KPMG Europe LLP and a member firm
of the KPMG network of independent member firms
affiliated with KPMG International Cooperative
(KPMG International), a Swiss entity. All rights
reserved.

The KPMG name, logo and cutting through
complexity are registered trademarks or trademarks
of KPMG International Cooperative (KPMG
International).

9825041

Diunggah oleh

Informasi Dokumen

Hak Cipta

Format Tersedia

Bagikan dokumen Ini

Bagikan atau Tanam Dokumen

Opsi Berbagi

Apakah menurut Anda dokumen ini bermanfaat?

Apakah konten ini tidak pantas?

Hak Cipta:

Format Tersedia

9825041

Diunggah oleh

Hak Cipta:

Format Tersedia

1

Anda mungkin juga menyukai