Impairment Mark FieldingPritchard mefielding com 1 Impairment IAS

Impairment Mark Fielding-Pritchard mefielding. com 1

Impairment IAS 36 New carrying amount Lower of Current carrying value Recoverable Amount Higher of Fair value less selling costs (Net Realisable Value) Value in Use mefielding. com 2

IAS 36– Impairment of cash generating assets Need to consider if carrying value of assets at the financial reporting date are materially correct If recoverable amount < carrying value, impair asset Recoverable amount is > of value in use, or fair value less costs to sell Value in use = present value of future cash flows arising from the asset Impairment charge recognised in statements: - Revaluation reserve, where reserve in place - Balance (if any) charged to expenses Annual impairment reviews for: - Purchased goodwill - ITAs with indefinite useful economic lives - ITAs not yet in use mefielding. com 3

IAS 36– Impairment of cash generating assets Standard not applied to: - Cash generating assets held under IAS 16 at revaluation - ITAs revalued regularly to fair value - Goodwill mefielding. com 4

Impairment IAS 36 Symington Recoverable value is the higher of value in use (VIU) and net realisable value (NRV). Symington have three machines that are suspected of impairment. The figures are as follows: $‘ 000 Carrying value 300 400 500 Value in use (VIU) 290 170 540 Net realisable value (NRV) 110 230 20 mefielding. com 5

Impairment IAS 36 Symington Before Impairment (10) (170) (0) After 290 230 500 300 400 500 mefielding. com 6

Impairment IAS 36 Min. Ed 1 Min. Ed acquired a business on 1/1 for $230, 000. The values of the assets of the business at that date based on book values were as follows ($000 s): Garage 20 Computers 10 Vehicles 90 Licences 30 Trade receivables (all recoverable) Cash Trade payables 10 50 20 mefielding. com 7

Impairment IAS 36 Min. Ed 2 On 1 February, three vehicles were stolen. The net selling value and net book value of each vehicle was $10, 000. The vehicles were uninsured. On 1 February a rival company commenced business in the same area. It is anticipated that the business revenue of AB will be reduced leading to a decline in the present value of the business, to $140, 000. It is unlikely the business could be sold as a going concern. The net selling value of the licences have fallen to $25, 000 as a result of the rival. mefielding. com 8

Impairment IAS 36 Min. Ed 1 Goodwill 40 (40) Garage 20 (10) Computers 10 (5) 5 Vehicles 90 10 (30) Intangibles Receivables 10 Cash 50 - 50 Payables (20) - (20) 230 (90) Total - 60 30 (5) 25 - 10 140 mefielding. com 9

Telepath June 2012 a) Reviewing assets to see if there has been a permanent fall in value Value being either financial value or value in use Need to look at complete class of assets which form a cash generating unit Assets in a cash generating unit may be a production process, sales unit. A group of assets which generate cash Information on the ‘value’ drawn from both internal and external sources mefielding. com 10

Telepath June 2012 bi) Current carrying value [800000 -[{80000050000}/5]2 500000 2013 220 x 0. 91 200. 2 2014 180 x 0. 83 149. 4 2015 170 x 0. 75 127. 5 2015 50 x 0. 75 37. 5 Value in Use 514. 6 mefielding. com Value in use is greater than carrying value so no impairment 11

Telepath June 2012 bii) Goodwill Patent Building Plant Receivables Before 1800 1200 4000 3500 12000 Adjustment After (200) (500) 0 (5300) 6700 ‘Fixed’ adjustments are $700, leaving $4600. Allocate first against goodwill, then against building & plant in proportion 4/3 mefielding. com 12

Telepath June 2012 bii) Before Adjustment After Goodwill 1800 (1800) 0 Patent 1200 (200) 1000 Building 4000 (1600) 2400 Plant 3500 (500)(1200) 1800 Receivables 1500 12000 1500 5300 6700 5300 - (1800+200+500)= 2800 Building 4/7 x 2800= 1600 Plant 2800 -1600= 1200 mefielding. com 13