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Section 27 – Impairment of Assets
27.1.1 Extract from FRS102: Section 27.1 – 27.1A.
27.1.2 OmniPro comment – Objective and scope.
27.2 Impairment of inventories.
27.2.1 Extract from FRS102: Section 27.2 – 27.4.
27.2.2 OmniPro comment – Impairment of Inventories.
27.3 Impairment of assets other than inventories.
27.3.1 Extract from FRS102: Section 27.5 – 27.6.
27.4 Impairment – assessing if an impairment is required.
27.4.1 Extract from FRS102: Section 27.7 – 27.8.
27.4.2.1 Assessing if an impairment is required.
27.5.1 Extract from FRS102: Section 27.9 – 27.10.
27.5.2 OmniPro comment – Indicators of Impairment
27.6 Measuring recoverable amount
27.6.1 Extract from FRS102: Section 27.11 – 27.13.
27.6.2 OmniPro comment – Measuring recoverable amount
27.7 Fair value less costs to sell
27.7.1 Extract from FRS102: Section 27.14 – 27.14A.
27.7.2.1 Fair value less cost to sell – active market
27.7.2.2 Fair value less cost to sell – no active market – valuation model
27.7.2.3 Discount rate for fair value less cost to sell
27.8.1 Extract from FRS102: Section 27.15 – 27.20.
27.8.2.2 Estimating the future pre-tax cash flows.
27.8.2.4 Steps in calculating Value in Use.
27.8.2.5 Value in use – discount rate.
27.8.2.6 Value in use – terminal value.
27.9 Assets held for service potential
27.9.1 Extract from FRS102: Section 27.20A.
27.9.2 OmniPro comment – Asset held for service potential
27.10 Recognising and measuring an impairment loss for a cash-generating unit
27.10.1 Extract from FRS102: Section 27.21 – 27.23.
27.10.2.1 Allocation of the improvement loss in a CGU.
27.10.2.2 Restoration on reduction of assets as a result of impairment
27.11 Additional requirements for impairment of goodwill
27.11.2.1 – Impairment of Goodwill
27.12 Reversal of an impairment loss.
27.12.1 Extract from FRS102: Section 27.28 – 27.30.
27.12.2.1 Impairment reversals generally.
27.13 Reversal when recoverable amount was estimated for a cash-generating unit
27.13.1 Extract from FRS102: Section 27.31.
27.13.2 OmniPro comment – Reversal of impairment when recoverable amount based on CGU
27.14.1 Extract from FRS102: Section 27.32 – 27.33A.
27.14.2 OmniPro comment – Disclosures.
27.14.2.1 Tangible fixed assets accounting policy disclosure.
27.14.2.2 Extract from notes to the financial statements.
27.14.2.2.1 Exceptional item – impairment charge.
27.14.2.2.2Tangible fixed assets.
27.14.2.2.3 Extract from profit and loss where impairment is shown as an exceptional item.
27.14.2.2.4 Extract from notes to the financial statements
27.14.2.2.5 Extract from notes where impairment is not deemed exceptional
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27.6 Measuring recoverable amount
Even if no impairment is required first an indicator exists that under Section 27.10 of FRS 102, the entity must assess if the residual value, depreciation rate or useful life should change.
27.6.1 Extract from FRS102: Section 27.11 – 27.13
27.11 The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If it is not possible to estimate the recoverable amount of an individual asset, references to an asset in paragraphs 27.12 to 27.20A should be read as references also to an asset’s cash-generating unit.
27.12 It is not always necessary to determine both an asset’s fair value less costs to sell and its value in use. If either of these amounts exceeds the asset’s carrying amount, the asset is not impaired and it is not necessary to estimate the other amount.
27.13 If there is no reason to believe that an asset’s value in use materially exceeds its fair value less costs to sell, the asset’s fair value less costs to sell may be used as its recoverable amount. This will often be the case for an asset that is held for disposal.
27.6.2 OmniPro comment – Measuring recoverable amount
As detailed in the sections 27.11 to 27.13 of FRS 102, where one method shows the recoverable amount is in excess of the carrying amount, then the second method does not have to be completed e.g. if fair value less cost to sell indicates the recoverable amount is greater than carrying amount, then the entity does not have to calculate the value in use.
If the value in use calculation indicates an impairment but the fair value less cost to sell method does not (or vice versa), then no impairment should be booked even where the entity has no intention of selling the asset.
Example 10: Value in use differs from fair value less costs to sell
Company A operates a factory and manufacturers products. The value in use calculation indicates an impairment of the fixed assets. The fair value of the fixed assets alone are well above the carrying amount. The company has no intention of disposing of the asset. In this particular case no impairment should be booked as the fair value is higher than the carrying amount. The intentions of management should be ignored as the company could if it wishes sell these valuable assets at any time.
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Examples:
Example 1: Lowest available CGU.
Example 2: Lowest available CGU.
Example 3: A decline in the asset’s market value.
Example 4: Significant adverse changes that have taken/will take place in the market
Example 5: Change in assets use.
Example 6: Introduction of new competitor
Example 7: Impairment indicators – decision to close.
Example 8: Performance of an asset is worse than expected.
Example 9: Investment in subsidiary.
Example 10: Value in use differs from fair value less costs to sell
Example 11: Fair value less costs to sell
Example 12: Determining cash flow to include.
Example 14: Impairment loss for a CGU with goodwill
Example 15: Restriction of reduction of assets as a result of an impairment
Example 16: Impairment loss on a CGU with goodwill and non-controlling interests
Example 17: Reversal of impairment on an individual asset
Example 18: Reversal of cash generating unit
Example 19: extract from an accounting policy note and disclosure requirements.
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