What is financial asset impairment?
What is financial asset impairment?
An asset is impaired if its projected future cash flows are less than its current carrying value. When an impaired asset’s carrying value is written down to market value, the loss is recognized on the company’s income statement in the same accounting period.
What is the treatment of an impairment loss under IAS 36?
revaluation decrease
In this case, the impairment loss is treated as a revaluation decrease in accordance with the respective standard. If it is not possible to calculate the recoverable amount of an individual asset, then the recoverable amount of the CGU to which the asset belongs should be calculated.
Which of the different types of assets are assessed for impairment under IAS 36?
In addition IAS 36 requires certain assets to be tested for impairment annually, irrespective of whether there is any indication of impairment. These are: Goodwill acquired in a business combination; • Intangible assets with an indefinite useful life; and • Intangible assets which are not yet available for use.
What is impairment of fixed assets?
Impairment of a fixed asset refers to an abrupt decrease in the economic benefits that an asset can generate due to damage, obsolescence etc. Impairment is recognized by reducing the book value of the asset in the balance sheet and recording impairment loss in the income statement.
What are the indicators of impairment of assets?
Indications of impairment [IAS 36.12] market value declines. negative changes in technology, markets, economy, or laws. increases in market interest rates. net assets of the company higher than market capitalisation.
What is the purpose of asset impairment?
IAS 36 Impairment of Assets seeks to ensure that an entity’s assets are not carried at more than their recoverable amount (i.e. the higher of fair value less costs of disposal and value in use).
What is IAS 36 impairment of assets?
In April 2001 the International Accounting Standards Board (Board) adopted IAS 36 Impairment of Assets, which had originally been issued by the International Accounting Standards Committee in June 1998. That standard consolidated all the requirements on how to assess for recoverability of an asset.
When was IAS 36 amended?
In May 2013 IAS 36 was amended by Recoverable Amount Disclosures for Non-Financial Assets (Amendments to IAS 36).
When do impairment losses get reversed?
For other assets, when the circumstances that caused the impairment loss are favourably resolved, the impairment loss is reversed immediately in profit or loss (or in comprehensive income if the asset is revalued under IAS 16 or IAS 38).
What is the purpose of an impairment test?
The general purpose of an impairment test is to ensure that an asset is not carried for financial reporting purposes at an amount that exceeds its recoverable amount; to do so would overstate a reporting entity’s financial position and performance.
