WHITE PAPER
IMPAIRMENTS
Release 11i
September 2007
Name Position
Change Record
Change Reference
INTRODUCTION ............................................................................................................................. 4
OBJECTIVE ............................................................................................................................................ 4
SCOPE...................................................................................................................................................... 4
B ACKGROUND .................................................................................................................................... 4
DEFINITIONS .................................................................................................................................... 5
IMPAIRMENTS APPLICABILITY ..................................................................................... 6
THE BIG PICTURE ........................................................................................................................ 7
IMPAIRMENTS SETUP .............................................................................................................. 8
DEFINE C ASH GENERATING UNITS .......................................................................................... 8
ASSIGN C ASH 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 B Y C ASH G ENERATING U NIT ....................................................................... 33
LOADING IMPAIRMENTS DATA ................................................................................... 34
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 trans actions to the assets while
Rollback Impairments will remove the Impairments transactions for
the assets.
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
Value in Use
This navigation path will open the Define Cash Generating Units
form, FAXSUCGU.
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.
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
*Note: When you upload the Impairments in status Preview, the new
status generated will be Previewed.
Update Impairments
Reviewing the Impairme nts 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.
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,
Impairment Name, Asset Number, Impairment Date and Status.
Press Go button.
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).
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:
Delete Impairments
To delete the Impairments, do the next steps:
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:
Carrying amount (or NBV) > higher (Value in Use, Net Selling
Price)
Cost
Depreciation
reserve
Impairment
Expense
Fair Value
Carrying
amount/NBV Value in Use
*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 )
*Note that for all the methods, except the third one, Impairment Loss
is calculated as the above formula.
A. Asset Addition
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.
Impairment transaction
Impairment Calculations
Adjusted Cost will be equal with Net Selling Price (3000) and will
depreciate over the remaining life of the asset.
Impairment transaction
Impairment Calculations
Adjusted Cost will be equal with Value in Use (3000) and will
depreciate over the remaining life of 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.
Impairment transaction
Impairment Calculations
Carrying amount > Max (Value in Use, Net Selling Price) and
therefore the Impairment Expense is calculated as:
Adjusted Cost will be equal with Max (Value in Use, Net Selling
Price) = 3500 and will depreciate over the remaining life of the asset.
Impairment transaction
Impairment Calculations
Impairment transaction
Impairment Calculations
Carrying amount < Max (Value in Use, Net Selling Price) and
therefore the Impairment Expense is calculated as:
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 Calculations
Carrying amount < Max (Value in Use, Net Selling Price) and
therefore the Impairment Expense is calculated as:
Impairment Addition
There are several situations when Impairment Additions Journals are
generated:
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.
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.