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Impairments, retirements and disposals
Extract from FRS 102 Section 18.25 and 18.26
18.25 To determine whether an intangible asset is impaired, an entity shall apply Section 27 Impairment of Assets. That section explains when and how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises or reverses an impairment loss.
18.26 An entity shall derecognise an intangible asset, and shall recognise a gain or loss in profit or loss:
(a) on disposal; or
(b) when no future economic benefits are expected from its use or disposal.
OmniPro comment
An intangible asset should be derecognised either when the asset is disposed or when no future economic benefits are expected and the gain/loss recognised in the profit and loss.
Example 6: Derecognition
Company A has an intangible asset which has a useful life of 20 years. In year 10, there is a risk that the asset is no longer required, as technology has changed and it is likely there will no longer be demand from the market. Management expect this to be the case. If this is the case the company believe that it will have no further use and therefore would have a nil scrap value. In year 11, managements belief is confirmed. It is in year 10 that the asset should be derecognised as at that point there is a reasonable expectation that there will be no further economic benefits.
If in the above example, the future economic benefits were reduced but not expected to be eliminated an impairment would have been required.
An impairment review is only required where an impairment indicator is present. The impairment review should be carried out in line with Section 27 – Impairment of assets.
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