# Topic 6 (2014)

Apunte EspañolUniversidad | Universidad Pompeu Fabra (UPF) |

Grado | International Business Economics - 3º curso |

Asignatura | International Financial Accounting |

Año del apunte | 2014 |

Páginas | 7 |

Fecha de subida | 22/06/2014 |

Descargas | 11 |

Subido por | awale |

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International Financial Accounting
Elisabeth Martinez
Topic 6. IMPAIREMENT (IAS 36)
1. INTRODUCTION
An impairment is when an asset losses value that is unpredictable.

We have to take IMPAIREMENT TESTS:
-Compulsory every year for assets with undefined useful life
-When either external or internal source of information indicate it.

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International Financial Accounting
Elisabeth Martinez
2. Calculating “Value in USE”
138
1,012
!
+
186
1,012
!
+
166
1,012
!
+
108
1,012
!
= 𝟓𝟐𝟐 𝑽𝑨𝑳𝑼𝑬 𝑰𝑵 𝑼𝑺𝑬
3. Registering impairement. CASH-GENERATING UNITS (CGU)
I. EXAMPLE
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International Financial Accounting
Elisabeth Martinez
The Impairments Loss is 30M. The first we need to impair is Goodwill (and therefore cancel
out goodwill reserve). Then, we will impair proportionally the rest of the assets.

€20 Goodwill impairment loss
TO
Goodwill €20
€1 Goodwill reserve (5% 20 Goodwill)
TO
Retained earnings €1
€4 Impairment loss on investment
property
€6 Impairement loss on PE
TO
Acc. Impairment on Investment
property €4
TO
Acc. Impairment loss on PE €6
4. Reversing an IMPAIRMENT LOSS
Any Acc. Impairment can be reversed. There are limitations:
• Goodwill can’t be reversed
• It should not exceed the carrying amount that would have been determined
if had no impairment loss recognized in prior years.

Therefore, the maximum you can reverse will be:
The lower of:
• It’s recoverable amount or
• The carrying amount if it hadn’t been impaired.

I. EXAMPLE
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International Financial Accounting
Elisabeth Martinez
We could cancel out some of the previous impairment for Net Assets (since Goodwill is
non-recoverable). However, the maximum we can reverse is 20, since 720 is the value if it
hadn’t been impaired.

€100 Acc. Impairment
TO
Impairment loss on Assets €100
TO
Impairment loss on Assets €20
THE MAXIMUM IS 20!
€20 Acc. Impairment
Even though we still have 80 more to reverse, we won’t do it because we have this limit.

II. EXAMPLE
CGU:
Goodwill: 5
PPE: 10
Total carrying amount: 15
Recoverable amount: 9
PPE useful life in 5 years.

End of year 1 (Impairment loss of Goodwill and proportionally PPE)
€5 Goodwill impairment loss
TO
Goodwill €5
€1 Impairment loss PPE
TO
Acc. Impairment PPE €1
€0.25 Goodwill reserve
TO
Retained earnings €0.25
End of year 2.

New recoverable amount is 10. Can I reverse impairment?
-Value if hasn’t been impaired:
PPE 10
(Depreciation PPE): 2
Carrying amount PPE: 8
€0,8 Acc. Impairment
The maximum you can recover is up to 8.

This way:
-Goodwill: 0
-PPE: 10
-Acc. Impairment (1)
-Acc. Depreciation (1,8)
TOTAL Carrying amount: 7,2
TO
Impairment reversal 0,8€
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International Financial Accounting
Elisabeth Martinez
III. EXAMPLE (1/6)
There is no impairment loss since Value in
Use is higher than carrying amount.

40,000 > 35,000
IV. EXAMPLE (2/6)
The impairment loss is Book Value-Rec.

Amount.

35,000-28=7
Proportionally, distribute 7,000 on the value
of assets.

€3,000 Impairment loss on IA
TO
7,000
∗ 15,000 = 3,000
35,000
7,000
𝑃𝑃𝐸 =
∗ 20,000 = 4,000
35,000
Acc. Impairment on IA €3,000
€4,000 Impairment loss on PPE
TO
Acc. Impairment on PPE €4,000
𝐼𝐴 =
V. EXAMPLE (3/6)
Now, the maximum we can decrease PPE is
2,000. So the 5,000 that are left will be placed
on IA, even though it is not proportional.

€5,000
Impairment loss
on IA
TO
€2,000
Impairment loss
on PPE
TO
Acc. Impairment
on IA €5,000
Acc. Impairment
on PPE €2,000
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International Financial Accounting
Elisabeth Martinez
VI. EXAMPLE (4/6)
No need to register impairment
V. EXAMPLE (5/6)
Book value-Recoverable amount = 35,00018,000=17,000
Since RA for PPE is higher than its Carrying
Amount, we can’t impair them. We will
have to impair IA.

€15,000
Impairment loss
on IA
TO
Acc.

Impairment on
IA €15,000
Here we can only decrease 15.000, but in reality it is 17,000. However we can’t do it
because of the limitations.

VI. EXAMPLE (6/6)
PART A is exactly the same as 3/6.

€5,000
TO
Acc. Impairment
Impairment loss
on IA €5,000
on IA
€2,000
Impairment loss
on PPE
TO
Acc. Impairment
on PPE €2,000
10 years useful life!
CASE 3. Carrying amount: (IA 15-5)+(PPE 20,000-2,000-Acc. Depreciation: 3,600) = 24,400.

26,000-24,400= 1,160 RA, distributed proportionally
€656 Acc. Impairment loss on IA
TO
Reversal of Impairment on IA €656
€944 Acc. Impairment loss on PPE
TO
Reversal of Acc. Imp on PPE €944
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International Financial Accounting
VII. EXAMPLE (1/2)
Elisabeth Martinez
Impairment loss: 70-35=35,000
First Asset to be decreased is Goodwill.

The next 25,000: PPE can only by decreased by
2,000 and therefore the next 23,000 will need to
be from IA.

However, IA book value is 20,000 and can only
be decreased by 20,000.

At then end, we will have 3,000 that should also
be decreased by we can’t because of the
limits
€10,000 Impairment loss Goodwill
TO
Goodwill €10,000
€2,000 Impairment loss on PPE
€20,000 Impairment loss on IA
€500 Goodwill reserve
TO
TO
TO
Acc. Impairment on PPE €2,000
Acc. Impairment on IA €20,000
Retained earnings €500
VIII. EXAMPLE (2/2)
After 2 years, we need to account for
depreciation on PPE.

38,000
∗ 2 = 3,800
20
Therefore, the CA of PPE is 38,000-3,800= 34,200
The impairment reversal is
55,000-34,200=20,800
IA: Carrying amount if hadn’t been impaired:
16,000
=PPE: Carrying amount if hadn’t been impaired:
1,800
We can’t reverse everything because of the limits!
€16,000 Acc. Impairment on IA
TO
€1,800 Acc. Impairment on PPE
TO
Impairment reversal on IA €16,000
Impairment reversal on PPE €18,000
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