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    IMPAIRMENT OF ASSET Acctg 211

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    LumongtadJoanMae
    The document discusses accounting principles and guidelines for impairment of assets. It defines impairment as when an asset's recoverable amount falls below its carrying amount. An entity must write down the asset's carrying amount to its recoverable amount, which is the higher of fair value less costs of disposal or value in use. The document outlines the steps to identify, measure, and recognize impairment losses and reversals.

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    IMPAIRMENT OF ASSET Acctg 211

    Uploaded by

    LumongtadJoanMae
    70 views30 pages
    The document discusses accounting principles and guidelines for impairment of assets. It defines impairment as when an asset's recoverable amount falls below its carrying amount. An entity must write down the asset's carrying amount to its recoverable amount, which is the higher of fair value less costs of disposal or value in use. The document outlines the steps to identify, measure, and recognize impairment losses and reversals.

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    The document discusses accounting principles and guidelines for impairment of assets. It defines impairment as when an asset's recoverable amount falls below its carrying amount. An entity must write down the asset's carrying amount to its recoverable amount, which is the higher of fair value less costs of disposal or value in use. The document outlines the steps to identify, measure, and recognize impairment losses and reversals.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    70 views30 pages

    IMPAIRMENT OF ASSET Acctg 211

    Uploaded by

    LumongtadJoanMae
    The document discusses accounting principles and guidelines for impairment of assets. It defines impairment as when an asset's recoverable amount falls below its carrying amount. An entity must write down the asset's carrying amount to its recoverable amount, which is the higher of fair value less costs of disposal or value in use. The document outlines the steps to identify, measure, and recognize impairment losses and reversals.

    Copyright:

    © All Rights Reserved
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 30

     Impairment is a fall in the market value of

    an asset so that the recoverable amount


    is now less than the carrying amount in
    the statement of financial position.
     There is an established principle that
    an asset shall not be carried at
    above the recoverable amount.

     An entity shall write down the carrying


    amount of an asset to the recoverable
    amount if the carrying amount is not
     The asset shall therefore be reduced by
    the amount of impairment loss.
     Three main accounting issues to
    consider:
    a. Indication of possible impairment
    b. Measurement of the recoverable
    amount
    c. Recognition of impairment loss
     An entity shall assess at each reporting
    date whether there is any indication
    that an asset may be impaired.
     If any such indication exists, the entity
    shall estimate the recoverable
    amount of the asset.
     Entity shall test an intangible asset
    with an indefinite useful life or an
    intangible asset not yet available for
    a. Significant decrease or decline in the
    market value of the asset as a result of
    passage of time or normal use or a new
    competitor entering the market.
    b. Significant change in the
    technological, market, legal or
    economic environment of the business
    in which the asset is employed.
    c. An increase in the interest rate or
    market rate of return on investment
    which will likely affect the discount rate
    used in calculating the value in use.
    d. The carrying amount of net assets of
    the entity is more than the “market
    capitalization.”
    a. Evidence of obsolescence or physical damage
    of an asset.

    b. Significant change in the manner or extent


    in which the asset is used with an adverse
    effect on the entity.

    c. Evidence that the economic performance of


    The recoverable amount of an asset is
    the fair value less cost of disposal or value
    in use, whichever is higher.
     Fair value of an asset is the price that
    would be received to sell the asset in an
    orderly transaction between market
    participants at the measurement date.
     Cost of disposal is an incremental cost
    directly attributable to the disposal of an
    asset or cash generating unit, excluding
     Examples of cost of disposal:
     legal cost
     stamp duty and similar transaction tax
     cost of removing the asset
     direct cost in bringing the asset into the condition for
    sale
     Fair value less cost of disposal
     exit price or selling price of an asset minus cost
    of disposal
     Best evidence of fair value:
    1. LEVEL 1 INPUTS are the quoted prices in an
    active market for identical assets.
    2. LEVEL 2 INPUTS are inputs that are observable
    either directly or indirectly
     include quoted prices for similar assets in an
    active market and quoted prices for identical
    or similar assets in a market that is not
    3. LEVEL 3 INPUTS are
    unobservable inputs for the asset.
     usually developed by the entity using
    the best available information from
    the entity’s own data
     An active market is a market in which
    transactions for the asset take place with
    sufficient regularity and volume to
    provide pricing information on an
    ongoing basis.

     A principal market is the market with the


     The market participants are the buyers
    and sellers in the principal market who
    are:
    a. Independent or unrelated parties
    b. Knowledgeable or having a reasonable
    understanding of the transaction
    c. Willing or motivated but not forced and
     Value in use is measured as the present
    value or discounted value of future net
    cash flows (inflows minus outflows)
    expected to be derived from an asset.

     The cash flows are pretax cash flows and


    pretax discount rate is applied in
    a. Cash flow projections shall be based on
    reasonable and supportable assumptions.
    b. Cash flow projections shall be based on the most
    recent budgets on financial forecasts, usually up to
    a maximum period of 5 years, unless a longer
    period can be justified.
    c. Cash flow projections beyond the 5-year period
    shall be estimated by extrapolating the 50year
    projections using a steady or declining growth
     include:
    a. Projections of cash inflows from the
    continuing use of the asset.
    b. Projections of cash outflows necessarily
    incurred to generate the cash inflows
    from the continuing use of the asset.
    c. Net cash flows received on the disposal
     do not include:
    a. Future cash flows relating to
    restructuring to which the entity is not
    yet committed.
    b. Future costs of improving the asset’s
    performance
    c. Cash inflows and outflows from
     Current pretax rate that reflects the
    current assessment of the time value
    of money and the risk of the specific
    asset.

     Should not reflect risks for which


     Impairment loss shall be
    recognized immediately by
    reducing the asset’s carrying
    amount to its recoverable amount
     Recognized in PROFIT OR LOSS
    and presented separately in
    PAS 36, paragraph 114
     Impairment loss recognized
    for an asset in prior years shall
    be reversed if there has been a
    change in the estimate of the
    PAS 36, paragraph 117

    - provides that the increased in carrying


    amount of an asset due to reversal of an
    impairment loss shall not exceed the
    carrying amount that would have been
    determined, had no impairment loss been
    recognized for the asset for the prior
    The reversal of the impairment loss
    shall be recognized immediately
    as income in the income
    statement.

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