Bilal Zia, ACA

1. Scope
Impairment under IAS 36
IAS 16 (including CWIP)
IAS 38 (including In process R&D)
IAS 40 cost model

Impairment Notes IAS 36

2
Write downs under other standards
IAS 2, IFRS 5
IAS 12, IAS 19 and IAS 11
IFRS 9 and IAS 40 FV Model, IAS 41

2. Impairment Test Frequency

a. Perform impairment calculations annually and whenever there is indication
for;
i. Goodwill
ii. Intangible assets with indefinite life
iii. CGUs to which goodwill is allocated
iv. In process R&D project
b. Look for impairment indicators on reporting date for other assets and
proceed accordingly
i. External indicators (12, IAS 36)
1. Decrease in market value of asset
2. Changes in PEST and competitive factors
3. Increase in interest rate
ii. Internal indicators (12, IAS 36)
1. Damage/ obsolescence
2. Change in manner of use
3. Maturity of estimate used with the passage of time
iii. In SPS for Investments under IAS 27,28,31 (12(, IAS 36)
iv. Estimate
changes
(useful
life,
residual
method,
depreciation/amortization method) might also be triggered.
3. Recoverable Amount
c. Higher of
i. FVLCTS Individual Assets and CGU
1. Fair Value
a. Binding transaction Active Market similar
transactions
b. Not forced sale value
2. Cost of disposal incremental costs
a. Included
i. Transaction taxes including stamp duty and
legal costs
ii. Cost of removing the asset (unless already
recognized)
iii. Any cost to bring the asset into saleable
condition
b. Not included
i. Termination benefits (IAS 19)
ii. Business
reorganization
costs
following
disposal
ii. Value in use Individual Assets and CGU
1. Included in CF Projections (assess on assets current
condition)
a. Cash inflows
i. from continuing use;

Bilal Zia, ACA

Impairment Notes IAS 36

b. Cash outflows
2
i. necessarily incurred to generate the cash
inflows above
ii. to prepare the asset for use (CWIP) and
iii. that can be directly attributed, or allocated on
a reasonable and consistent basis, to the asset;
and
c. Expected cash flows from disposal (gross inflow
disposal costs)
2. CGU concept is introduced when VIU calculation for
individual asset is not measurable on stand-alone basis
d. Assets held for disposal FVLCTS VIU
4. Measurement and Recognition (Walkthrough Example)
e. Individual assets
i. Measurement Impairment loss = CV recoverable amount (RA)
ii. Recognition
1. Cost Model Income Statement
2. Revaluation Model OCI (until all Surplus is consumed)
iii. Other matters
1. Compensation recognize in income statement when
becomes receivable.
2. Depreciation/Amortization revised afterwards
3. Deferred Tax implications (Ex 3 Appendix, IAS 36)
f. CGU, Goodwill, Corporate Assets
i. Measurement
1. CGU Smallest identifiable unit that creates largely
independent cashflows (Def).
a. Concept (App A, IAS 36)
i. Example (67, IAS 36)
ii. Example (68, IAS 36)
b. Measurement Impairment loss = CGU CV CGU
recoverable amount (RA)
i. Concept of CGU essentially relates to assets
only unless liability is inherently attached to
some asset. Example (78, IAS 36)
ii. CGU CV and RA includes share of Goodwill and
Corporate Assets as explained below in
relevant tabs
2. Goodwill
a. REF IFRS 3 Disclosure of factors that make up the
goodwill
i. Expected synergies
ii. Intangible assets not recognized
iii. Other factors (to be specified)
b. Allocation (for impairment purposes)
i. Goodwill is allocated to CGUs for impairment
testing
ii. Allocate GW on reasonable and consistent
basis to lowest level CGU possible
c. CGU Disposal

Bilal Zia, ACA

Impairment Notes IAS 36

i. If respective
CGU disposed off derecognize
2
the allocated goodwill
ii. If operation within CGU disposed off
derecognize proportionately (on RA basis).
Example (86, IAS 36)
d. Frequency CGU to which GW is allocated tested
for impairment annually or whenever there is
indication
3. Corporate Asset
a. Distinctive characteristics
i. Does not create cash inflows within itself
ii. Cannot be fully attributed to any CGU (other
than entity as a whole)
b. Allocation
i. Corporate Asset is allocated to CGUs for
impairment testing
ii. Allocate CA on reasonable and consistent basis
to lowest level CGU possible
c. Frequency CGU to which CA is allocated tested for
impairment whenever there is indication
ii. Recognition
1. IL first charged to GW Income Statement
2. Then charged to individual and corporate assets on pro rata
basis (on CV) refer recognition of impairment loss of
individual assets
iii.

Bilal Zia, ACA

Impairment Notes IAS 36

WALK THROUGH ILLUSTRATION

Suppose a company has a total of 10 individual assets (1-10), one corporate asset and
goodwill. The Company consists of two CGUs A and B. Assets 1-6 relate to CGU A and
Assets 7-10 relate to CGU B. Existing Carrying values and recoverable amounts of the
assets are as follows;
Individual
items

CGU Allocation

Asset
Asset
Asset
Asset
Asset
Asset
Asset

CGU
CGU
CGU
CGU
CGU
CGU
CGU

1
2
3
4
5
6
7

Carrying
Value

Recoverable
Amount

A
A
A
A
A
A
B

10
15
5
8
7
5
25

Asset 8
Asset 9

CGU B
CGU B

20
5

Asset 10

CGU B

Corporate
Asset
Goodwill

Apportion 70% A and

30% B
Apportion 60% A and
40% B

CGU A
CGU B

20
10
63
65

Revised
Carrying
Value

5
20
5
10
5
5
Not
determinable
25
Not
determinable
Not
determinable
Not
determinable
Not
determinable
55
50

Required:
Calculate the amount of impairment to be recorded in the financial statements.
EXAMPLE GOODWILL ALLOCATION
A company which has one existing business with 3 CGU groups (C,D,E) acquires one
business from another entity. The acquired business has 2 identified CGU groups (A and
B). The total amount of goodwill purchased in the transaction is 100. The acquirer
expects CGU groups A, B, C and D to benefit from synergies of the business
combination.
1. Existing Business
a. CGU E
b. CGU C
c. CGU D
2. Acquired Business
a. CGU A
b. CGU B
Required
For IAS 36 purposes which CGU goodwill should be allocated?

Bilal Zia, ACA

Impairment Notes IAS 36

2