IAS 36 – Impairment of Assets

6 Impairment loss for cash-generating unit

An impairment loss is recognized if the recoverable amount of the CGU(s) is less than the carrying amount of the CGU(s)

In allocating an impairment loss to the assets in the CGU(s), an entity shall not reduce the carrying amount of an asset below the highest of:

  1. its fair value less costs to sell (if determinable);
  2. its value in use (if determinable); and
  3. zero.

An impairment loss shall be allocated to reduce the carrying amounts of the assets constituting CGU(s) in the following order:

  1. first, to reduce the carrying amount of any goodwill allocated to the CGU(s); and
  2. then, to the other assets of the CGU(s) pro rata on the basis of the carrying amount of each asset in the CGU(s)
  3. However, if an asset within the CGU (a CGU to which goodwill is allocated) is tested for impairment at the same time the CGU is tested then asset is tested for impairment and impairment loss (if any) is recognized before CGU is tested for impairment i.e. even before reducing the carrying amount of goodwill.

These reductions in carrying amounts shall be treated as impairment losses on individual assets

After allocation, any remaining amount of impairment loss related to CGU(s) shall be recognized as a liability if it is required by another Standard.

6.1 Exceptions

If recoverable of an individual asset in a CGU is not determinable then impairment loss is allocated on the arbitrary basis among the assets of the CGU except goodwill. The following also applies:

  1. An impairment loss is recognized if carrying amount exceeds the higher of:
    1. Asset’s Fair value less cost to sell
    2. The resultant carrying amount after the allocation of CGU’s impairment
  2. No impairment will be recognized if related CGU is not impaired even if individual asset’s carrying amount exceeds its fair value less cost to sell.

7 Reversing an Impairment loss

7.1 General principles – applicable to both asset and CGU alike

At the end of each reporting period, an entity should assess whether there is an indication that impairment loss already recognized for an asset other than good:

  1. May no longer exist; or
  2. Have decreased

If any such indications exist then entity shall estimate the recoverable amount of the asset.

For estimating purposes, an entity shall use the information from external and internal sources (as were discussed for impairment testing).

If there is an indication that impairment loss may no longer exist or have changed then the depreciation (amortization) method or residual value may need to be adjusted even if impairment loss is not reversed.

Impairment is reversed when there is a change in the estimate used to determine asset’s recoverable amount since the date last impairment loss is recognized. In this case, the carrying amount of the asset is increased to recoverable amount but not exceeding the carrying amount that asset would had if no impairment loss for the asset was recognized.

However, asset’s cash flows do not increase due to unwinding of discount even if asset’s recoverable amount appears to be more than its carrying amount.

7.2 Specific principles – Individual assets

Any impairment reversal for an asset other than goodwill shall be recognized immediately in profit or loss.

In case of revalued asset, impairment reversal shall be treated as revaluation increase and recognized in other comprehensive income. However, if any impairment loss related to revalued asset was recognized in profit or loss then reversal shall be made in the profit or loss to the extent loss is recognized in profit or loss.

7.3 Special principles – CGU

Excluding goodwill, A reversal of an impairment loss for a cash-generating unit shall be allocated to the assets of the unit pro rata with the carrying amounts of those assets.

These increases in carrying amounts shall be treated as reversals of impairment losses for individual assets and recognised accordingly.

In allocating the impairment reversal, the carrying amount shall not exceed the lower of:

  1. its recoverable amount (if determinable); and
  2. the carrying amount asset would had if no impairment loss been recognized.

7.4 Reversing an impairment – Goodwill

Impairment loss related to goodwill cannot be reversed.