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Impairment of assets other than inventories
Extract from FRS102: Section 27.5 – 27.6
27.5 If, and only if, the recoverable amount of an asset is less than its carrying amount, the entity shall reduce the carrying amount of the asset to its recoverable amount. That reduction is an impairment loss. Paragraphs 27.11 to 27.20A provide guidance on measuring recoverable amount.
27.6 An entity shall recognise an impairment loss immediately in profit or loss, unless the asset is carried at a revalued amount in accordance with another section of this FRS (for example, in accordance with the revaluation model in Section 17 Property, Plant and Equipment). Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other section.
OmniPro comment
As detailed in Section 17 Property, Plant and Equipment, any impairment identified on a revalued asset is first set against the revaluation reserve and then to the profit and loss account.
See diagrammatic representation of the analysis to be performed when assessing if an impairment is present.
*Note the carrying value can be the value of the individual assets where cash flows can be identified from the asset or it can be a carrying value of a cash generating unit where cash flows cannot be identified as specific to an asset. The starting point is an individual asset, then one should move to a CGU. As can be seen from the above, it may not always be necessary to calculate the fair value less costs to sell and the value in use. If one of the measures give a value which is greater than the carrying value this indicates no impairment is required so there is no need for further work to be performed to assess the other measure.
Recoverable amount is defined in Appendix I of FRS 102 as ‘the higher of an asset’s (or cash generating unit’s) less costs to sell and its value in use.
Fair value less cost to sell is defined as ‘the amount obtainable from the sale of an asset or CGU in an arm’s length transaction between knowledgeable willing parties, less the costs of disposal.
Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. As can be seen from the above, it may not always be necessary to calculate the value in use.
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