IMPAIRMENT
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and Finance, CoBE, AAU. Permission must be obtained from
Learning Objectives
Up on completion of this topic, you will
be able to:
Define the recoverable amount of an
asset
Define impairment losses
Give examples of, and be able to
identify, circumstances that may
indicate that an impairment of an asset
has occurred
Describe what is meant by a cash-
Learning Objectives
DETERMINATION OF
IMPAIRMENT
SCOPE
This Standard shall be applied in accounting
for the impairment of all assets, other than:
Inventories (see IAS 2 Inventories);
Investment property that is measured at fair
value (see IAS 40 Investment Property);
Biological assets related to agricultural activity
within the scope of IAS 41
Non-current assets (or disposal groups) classified
as held for sale in accordance with IFRS 5
Non-current Assets Held for Sale and Discontinued
Operations
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SCOPE
SCOPE
The Standard does apply to
Property, plant, and equipment
Investment property carried at cost
Intangible assets and goodwill
Subsidiaries, associates, and joint ventures
DEFINITIONS OF TERMS
Impairment
A fall in the value of an asset (recoverable amount is
less than carrying value).
Carrying amount (CA)
The net value of the asset (after deducting accumulated
depreciation & any impairment losses).
If value of the asset is higher than its realistic value (RA)
', the asset is judged to have suffered an impairment
loss.
It will be reduced in value, by the amount of the imp.
loss and the amount should be written off against
profit immediately
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10
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17
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The loss will be applied first against the goodwill and then against
the tangible non-current assets on a pro-rata basis.
CA
Impairment-loss Carrying amount
Post- impairment
ETBm
ETB
ETB
Building
Plant and equipment
Goodwill
Current Assets
Total
50
30
6
10
20
(5)
(1)
(10)
66
25
5
20
(16)
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CA-After
40
Tangible-non-current(MVETB60m)80
60
Total
140
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After three years, the entity makes a technological breakthrough
of its own, and the recoverable amount of the cash generating
unit increases to ETB90m. The carrying amount of the tangible
non-current assets had the impairment not occurred would have
been ETB70m.
Calculate the reversal of the impairment loss.
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DISCLOSURE REQUIREMENTS
DISCLOSURE REQUIREMENTS
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SIMILARITIES AND
DIFFERENCES BETWEEN
IFRS AND US GAAP
Similarities
long-lived assets are not tested annually, but rather
when there are similarly defined indicators of
impairment in both cases.
Both Standards Require
goodwill and intangible assets with indefinite useful
lives to be tested at least annually for impairment
and
more frequently if impairment indicators are present.
Both require that the impaired asset be written down
and an impairment loss recognized.
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SIMILARITIES AND
DIFFERENCES BETWEEN
IFRS AND US GAAP
DIFFERENCES
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SIMILARITIES AND
DIFFERENCES BETWEEN
IFRS AND US GAAP..
US GAAP
Differences
Method
Two-step approach requires
of
that a recoverability test
determini be
performed
first
ng
(carrying amount of the
impairme asset is compared with the
nt
sum
of
future
longundiscounted cash flows
lived
generated through use and
assets
eventual disposition).
IFRS
Imp-losscalculatio
n-longlived
assets
One-step
approach
requires
that
impairment
loss
calculation
be
performed
if
impairment indicators
exist.
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SIMILARITIES AND
DIFFERENCES BETWEEN
IFRS AND US GAAP
Assignm Goodwill is assigned to a
ent
of reporting unit, which is
goodwill defined as an operating
segment or one level below
an
operating
segment
(component).
Goodwill is allocated
to a cash-generating
unit (CGU) or group of
CGUs,
Operating
Segments.
Method
of
determi
ning
impairm
ent
G/will
Qualitative
assessment
is
not
permitted.
One-step
approach requires that
an impairment test be
done at the CGU level.
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SIMILARITIES AND
DIFFERENCES BETWEEN
IFRS AND US GAAP
Method of
determini
ng
impairme
nt
indefinitelived
intangible
s
Qualitative
assessment is not
permitted.
Onestep
approach
requires that an
impairment
test
be done at the
CGU
level
by
comparing
the
CGUs
carrying
amount, including
goodwill, with its
recoverable
amount
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SIMILARITIES AND
DIFFERENCES BETWEEN
IFRS AND US GAAP
Imp-loss
calculati
ongoodwill
The amount by
which the carrying
amount of goodwill
exceeds
the
implied fair value
of
the
goodwill
within its reporting
unit.
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SIMILARITIES AND
DIFFERENCES BETWEEN
IFRS AND US GAAP
Level
of
assess
ment
indefin
itelived
intangi
ble
assets
Indefinite-lived
intangible
assets
separately
recognized
should
be
assessed for impairment
individually unless they
operate in concert with
other
indefinite-lived
intangible assets as a
single asset (i.e., the
indefinite-lived
intangible
assets
are
essentially
inseparable).
Indefinitelived intangible assets may
not be combined with other
assets (e.g., finite-lived
intangible
assets
or
goodwill) for purposes of
If the indefinite-lived
intangible asset does
not generate cash
inflows
that
are
largely independent
of those from other
assets or groups of
assets,
then
the
indefinite-lived
intangible
asset
should be tested for
impairment as part
of the CGU to which
it belongs, unless
certain
conditions
are met.
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