Yakub02
Banned
Additional requirements for testing for impairment
The following assets must be reviewed for impairment at least annually, even when there is no evidence of impairment: an intangible asset with an indefinite useful life; and goodwill acquired in a business combination.
Measuring recoverable amount It has been explained that recoverable amount is the higher of an asset’s:
fair value less costs of disposal; and its value in use.
If either of these amounts is higher than the carrying value of the asset, there has been no impairment.
IAS 36 sets out the requirements for measuring ‘fair value less costs of disposal’ and ‘value in use’.
Measuring fair value less costs of disposal Fair value is normally market value. If no active market exists, it may be possible to estimate the amount that the entity could obtain from the disposal.
Direct selling costs normally include legal costs, taxes and costs necessary to bring the asset into a condition to be sold. However, redundancy and similar costs (for example, where a business is reorganised following the disposal of an asset) are not direct selling costs.
Calculating value in use Value in use is a value that represents the present value of the expected future cash flows from use of the asset, discounted at a suitable discount rate or cost of capital. Value in use is therefore calculated by:
estimating future cash flows from the use of the asset (including those from ultimate disposal). discounting them to present value.
The following assets must be reviewed for impairment at least annually, even when there is no evidence of impairment: an intangible asset with an indefinite useful life; and goodwill acquired in a business combination.
Measuring recoverable amount It has been explained that recoverable amount is the higher of an asset’s:
fair value less costs of disposal; and its value in use.
If either of these amounts is higher than the carrying value of the asset, there has been no impairment.
IAS 36 sets out the requirements for measuring ‘fair value less costs of disposal’ and ‘value in use’.
Measuring fair value less costs of disposal Fair value is normally market value. If no active market exists, it may be possible to estimate the amount that the entity could obtain from the disposal.
Direct selling costs normally include legal costs, taxes and costs necessary to bring the asset into a condition to be sold. However, redundancy and similar costs (for example, where a business is reorganised following the disposal of an asset) are not direct selling costs.
Calculating value in use Value in use is a value that represents the present value of the expected future cash flows from use of the asset, discounted at a suitable discount rate or cost of capital. Value in use is therefore calculated by:
estimating future cash flows from the use of the asset (including those from ultimate disposal). discounting them to present value.
