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(IAS 36)Presented by :- R. Charan Teja, I M.Fin.
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SCOPE OF IAS 36Applies to:- land buildings machinery and equipment
investment property carried at cost intangible assets goodwill investments in subsidiaries, associates, and joint
ventures carried at cost assets carried at revalued amounts under IAS 16
and IAS 38
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WHAT IS IMPAIRMENT?
IMPAIRMENT:- An asset is impaired whenits carrying amount exceeds its
recoverable amount.IMPAIRMENT LOSS:- An impairment loss is
the amount by which the carrying
amount of an asset or a cash-generatingunit exceeds its recoverable amount.
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Carrying amount is the amount at which an asset isrecognised after deducting any accumulated depreciation(amortisation) and accumulated impairment losses.
Recoverable Amountof an asset or a cash-generating unit isthe higher of its fair value less costs to sell and its value in use.
Fair value less costs to sell is the amount obtainable fromthe sale of an asset or cash-generating unit in an arms lengthtrans action between knowledgeable, willing parties, less the costsof disposal.
is the present value of the future cash flows
expected to be derived from an asset or cash-generating unit.
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INDICATORS OF IMPAIRMENT
External sources:
market value declines
negative changes in technology,markets, economy, or laws
increases in market interestrates
company stock price is belowbook value
Internal sources:
obsolescence or physical
damage
asset is part of a restructuringor held for disposal
worse economic performancethan expected
These lists are not exhaustive.
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The recoverable amounts of certain
intangible assets should be measuredannually whether there is indication of
impairment or not:-
intangible asset with an indefinite useful life
intangible asset not yet available for use
goodwill acquired in a business combination
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DETERMINING RECOVERABLE
AMOUNT
If fair value less costs to sell or value in use is morethan carrying amount, it is not necessary to calculatethe other amount. The asset is not impaired.
If fair value less costs to sell cannot be determined,then recoverable amount is value in use.
For assets to be disposed of, recoverable amount is fair
value less costs to sell.
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FAIR VALUE LESS COSTS TO SELL
A binding sale agreement
An active market for that type of asset.
If, no active market, use the best estimate of the asset'sselling price.
Costs of disposal are the direct added costs only.
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VALUE IN USE
Calculation should reflect the following:-an estimate of future cash flows
expectations about possible variations
the time value of money
the price for bearing uncertainty
other factors
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CASH GENERATING UNIT
Recoverable Amount is estimated for an individualasset. If not possible to estimate the RA of individualasset, determine the RA of the CGU to which the assetbelongs.
CASH GENERATING UNITis the smallestidentifiable group of assets that generates cash inflows
that are largely independent of the cash inflows fromother assets or groups of assets.
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IMPAIRMENT OF CGU
Goodwill must be allocated to each CGU or groups ofCGUs.
The impairment loss is allocated to:- first, reduce the carrying amount of any goodwill
allocated to the CGU; and
then, reduce the carrying amounts of the other assets
of the unit on pro-rata basis.
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The carrying amount of an asset should
not be reduced below the highest of:-
its fair value less costs to sell (if determinable),
its value in use (if determinable), and
zero.
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PROCESS OF IMPAIRMENT TESTING
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REFERENCESAccounting Standards and Corporate AccountingPractices Dr. T.P.Ghosh.
International Financial Reporting Standards HennieVan Greuning.
www.ey.com
www.ifrs.org
www.iasplus.com
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THANK YOU
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Q & A
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