CFAS Notes
(Conceptual Framework and Accounting Standards 2022 Edition by C. Valix)
CHAPTER 19 a. Cash inflows from the
Impairment of Assets continuing use of the asset.
b. Cash outflows necessarily
incurred to generate the cash
IMPAIRMENT
inflows from the continuing use
- There is an established principle of the asset.
that an asset shall not be c. Net cash flows received or paid
carried at above the on the disposal of the asset at
recoverable amount. the end of the useful life in an
- The recoverable amount of an arm's length transaction.
asset is the fair value less cost
Estimates of future cash flows exclude:
of disposal or value in use,
whichever is higher. a. cost of improving asset
performance
Fair value less cost of disposal
b. restructuring cost
Fair value is the price that would be c. cash flows from financing
received to sell an asset in an orderly activities
transaction at the measurement date. d. income tax payment.
Fair value less cost of disposal is equal Recognition of impairment loss
to the exit price or selling price of an
If the recoverable amount of an asset
asset minus cost of disposal.
is less that the carrying amount, an
Cost of disposal is an incremental impairment loss has occurred.
cost directly attributable to the
- shall be recognize immediately
disposal of an asset, excluding finance
by reducing the asset’s carrying
cost and income tax expense.
amount to its recoverable
value.
- is recognized in profit or loss
and presented separately in the
Value in use income statement.
Value in use is measured as the Note: the fair value less cost of disposal is
considered the recoverable amount and
present value or discounted value of
used in computing the impairment loss
future net cash flows expected to be
because it is higher than the value in use.
derived from an asset.
After the recognition of an impairment
The cash flows are pretax cash flows loss, the depreciation charge for the asset
and pretax discount rate is applied shall be adjusted in future periods to
in determining the present value. allocate the revised carrying amount less
residual value on a systematic basis over
Estimates of future cash flows include: the remaining useful life.
Reversal of an impairment loss However, if it is not possible to
estimate the recoverable amount of
PAS 36, paragraph 114
the individual asset, an entity shall
an impairment loss recognized for an determine the recoverable amount of
asset in prior years shall be reversed if the cash generating unit to which the
there has been a change in the asset belongs.
estimate of the recoverable amount.
Allocation of impairment loss
PAS 36, paragraph 117,
PAS 36, paragraph 104
the increased carrying amount of an
When an impairment loss is
asset due to a reversal of an
recognized for a cash generating unit,
impairment loss shall not exceed the
this loss shall be allocated to the
carrying amount that would have been
assets of the unit in the following
determined, had no impairment loss
order:
been recognized for the asset in prior
years. a. First, to the goodwill, if any.
b. Then, to all other noncash
NOTE: The reversal of the impairment
assets of the unit prorate
loss shall be recognized
based on their carrying
immediately in the income statement
amount.
as gain on reversal of impairment loss.
PAS 36, paragraph 105
Journal entry to record
impairment loss The carrying amount of an asset shall
be reduced below the highest of fair
Impairment loss XXX
value less cost of disposal, value in
Accumulated Depreciation
use and zero.
XXX
The amount of impairment loss that
would otherwise have been allocated
Cash generating unit (CGU)
to the asset shall be allocated prorate
- is the smallest identifiable to the other assets of the cash
group of assets that generate generating unit.
cash inflows.
Reversal of impairment loss on
- is segment of business that
goodwill
generates revenue and cash
inflows independently. Pas 36, paragraph 124
- may be a department, a product
Explicitly provides that an impairment
line or a segment of business.
loss recognized for goodwill shall not
As a basic rule, the recoverable be reversed in a subsequent period
amount of an asset shall be
determined for the asset individually.
