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UMST

MBA(B7)

FINANCEIAS 36

Asset Impairment

Presented by:

Babiker Hassan Elamem

Elhadi Ibrahim Elsafi

Handi Abdelmaged

Tarig Mohamed elhassanSUN18 /12/ 2011

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What is impairment Objective Scope Indications of potential impairment Annual testing requirements Measuring recoverable amount Fair value less costs to sell Value in use Recognizing and measuring an impairmentloss Reversing an impairment loss Presentation and disclosure

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Impairment is diminution in the value ofassets otherwise than by depreciation

Depreciation The objective is to charge the cost of asset over its useful

economic life

Matching concept is appliedImpairment

The objective is to bring down the carrying amount to itsrecoverable amount.

Prudence concept is applied.

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* IAS 36 prescribes procedures to ensurethat assets are carried at no more thantheir recoverable amount.

*The standard specifies when impairmentlosses are to be recognized and theconditions under which such losses should

be reversed* IAS 36 also provides guidance on required

disclosures

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IAS 36 specifically scopes out the impairment ofcertain assets for which guidance is given in otherstandards . As a result, it does not apply to:

inventories

assets arising from construction contracts deferred tax assets assets arising from employee benefits financial assets investment property that is measured at fair value

certain biological assets certain insurance contract assets non-current assets

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IAS 36 does apply to (among otherassets):

land buildings machinery and equipment intangible assets including goodwill

investment property carried at cost investments in subsidiaries, associates,

and joint ventures

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According to IAS 36, an asset is impaired if its carryingamount is greater than its recoverable amount. IAS 36requires that, at each balance-sheet date, anorganization must assess whether there are anyindications that assets may be impaired. If anindication of impairment exists, the organization isrequired to estimate the recoverable amount of theasset. Note that with respect to requirements formeasuring recoverable amounts , and the generalrequirements for reversing an impairment loss , the

standard uses the term assets; notwithstanding, therequirements apply both to individual assets and tocash-generating units.

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In determining whether an asset may beimpaired, paragraph 12 requires the entityto

consider, at a minimum, the followingexternal and internal indicators (these listsare not

intended to be exhaustive):

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evidence of obsolescence or physical damage of anasset

significant adverse changes in how an asset is used oris expected to be used (for example, the assetbecoming idle, plans for restructuring, or disposal orreassessment of the useful life of an asset as finiterather than indefinite)

evidence that the economic performance of an asset isworse than expected

If one or more of these indications exist, the remaining

useful life, amortization method, and/or the residualvalue for the asset may need to be reviewed andadjusted, even if no impairment loss is recognized forthe asset (IAS17).

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significant decline in an assets market value significant adverse changes in the entitys

technological, market, economic, or legalenvironment increase in interest rates that is likely to

materially decrease the assets recoverableamount

the entitys market capitalization being lower

than the carrying amount of its net assets

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In addition to testing when there areindications possible impairment, the followingintangible assets must be tested for impairment

(by comparing carrying amounts andrecoverable amounts) on an annual basis,regardless of whether or not there is any

indication of impairment intangible assets with indefinite useful lives intangible assets not yet available for use goodwill acquired in a business combination

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IAS 36 defines an assets recoverableamount as the higher of its fair valueless costs to sell "andits value in use.

Accordingly, it is not always necessary todetermine both the fair value less costs tosell and its value in use, because if eitherof these amounts exceeds the assetscarrying amount, the asset is not impairedand it is not necessary to estimate theother amount.

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Fair value less costs to sellis the amountobtainable from the sale of an asset orcash-generating unit in an arms lengthtransaction between knowledgeable,willing parties, less the costs of disposal.

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To estimate the value in use of an asset,an entity first estimates the future net cashflows to be derived from the assets use

and ultimate disposal, and then applies theappropriate discount rate to those futurecash flows.

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Estimates of future cash flows shall include: (a) projections of cash inflows from the continuing

use of the asset; (b) projections of cash outflows that are

necessarily incurred to generate the cash inflowsfrom continuing use of the asset (including cashoutflows to prepare the asset for use) and can bedirectly attributed, or allocated on a reasonableand consistent basis, to the asset; and

(c) net cash flows, if any, to be received (or paid)for the disposal of the asset at the end of its usefullife.

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Future cash flows shall be estimated for the asset in itscurrent condition. Estimates of future cash flows shallnot include estimated future cash inflows or outflowsthat are expected to arise from:

(a) a future restructuring to which an entity is not yetcommitted; or

(b) improving or enhancing the assets performance. Estimates of future cash flows shall not include: (a) cash inflows or outflows from financing activities; or (b) income tax receipts or payments.

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If, and only if, the recoverable amount ofan asset is less than its carrying amount,

the carrying amount of the asset shall bereduced to its recoverable amount. Thatreduction is an impairment loss.

An impairment loss shall be recognized

immediately in profit or loss, unless theasset is carried at revalued amount inaccordance with another Standard

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An impairment loss shall be recognized for acash-generating unit (the smallest group ofcash-generating units to which goodwill or a

corporate asset has been allocated) if, andonly if, the recoverable amount of the unit(group of units) is less than the carryingamount of the unit (group of units). The

impairment loss shall be allocated to reducethe carrying amount of the assets of the unit(group of units) in the following order:

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For the purpose of impairment testing, goodwillacquired in a business combination shall, from theacquisition date, be allocated to each of theacquirers cash-generating units, or groups of

cash-generating units, that is expected to benefitfrom the synergies of the combination, irrespectiveof whether other assets or liabilities of the acquireare assigned to those units or groups of units.

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The annual impairment test for a cash-generatingunit to which goodwill has been allocated may beperformed at any time during an annual period,

provided the test is performed at the same timeevery year. Different cash-generating units may betested for impairment at different times. However, ifsome or all of the goodwill allocated to a cash-

generating unit was acquired in a businesscombination during the current annual period, thatunit shall be tested for impairment before the end ofthe current annual period.

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The Standard permits the most recentdetailed calculation made in a precedingperiod of the recoverable amount of acash-generating unit (group of units) towhich goodwill has been allocated to beused in the impairment test for that unit

(group of units) in the current period,provided specified criteria are met.

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An impairment loss recognized in priorperiods for an asset other than goodwillshall be reversed if, and only if, there

has been a change in the estimatesused to determine the assets

recoverable amount since the last

impairment loss was recognized .

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A reversal of an impairment loss for a cash-generating unit shall be allocated to theassets of the unit, except for goodwill, prorata with the carrying amounts of those

assets. The increased carrying amount of anasset other than goodwill attributable to areversal of an impairment loss shall notexceed the carrying amount that would have

been determined (net of amortization ordepreciation) had no impairment loss beenrecognized for the asset in prior years.

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A reversal of an impairment loss for anasset other than goodwill shall berecognized immediately in profit or loss,

unless the asset is carried at revaluedamount in accordance with anotherStandard.

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