What is the cause of an asset
IAS 36 Depreciation of assets
With IAS 36 Depreciation of assets it is to be ensured that the assets of a company are not shown higher than their recoverable amount in the balance sheet (the higher of the two amounts from the fair value less costs to sell and the value in use). With the exception of goodwill and certain intangible assets for which an annual impairment test is required, companies must perform an impairment test if there is an indication of impairment of an asset, whereby the impairment test can be performed on a cash-generating unit if a The asset does not generate any cash inflows that are largely independent of the cash inflows from other assets.
IAS 36 was reissued in March 2004 and applies to goodwill and intangible assets acquired in business combinations for which the contract date is on or after March 31, 2004, and prospectively to all other assets for Reporting periods beginning on or after March 31, 2004 are to be used.
History of the creation of IAS 36
Standard draft E55 Depreciation of assets published
IAS 36 Depreciation of assets published
Effective Date: Reporting periods beginning on or after July 1, 1999
March 31, 2004
Revised version of IAS 36 issued
Is based on goodwill and intangible assets acquired in business combinations for which the contract date is on or after March 31, 2004, and prospectively on all other assets for reporting periods ending on or after March 31, 2004. March 2004 begin to apply
|May 22, 2008||IAS 36 amended as part of the 2007 annual improvements with regard to the disclosure of the estimates used to determine the realizable value||Effective Date: Reporting periods beginning on or after January 1, 2009|
|April 16, 2009||IAS 36 changed as part of the annual improvements in 2009 with regard to the valuation object in the impairment test for goodwill||Effective Date: Reporting periods beginning on or after January 1, 2010|
|May 29, 2013||IAS 36 amended with regard to the recoverable amount for non-financial assets (clarification of the required information)||Effective Date: Reporting periods beginning on or after January 1, 2014|
Changes planned by the IASB
Summary of IAS 36
Objective of IAS 36
The aim of IAS 36 is to ensure that assets are not recognized in the balance sheet above their recoverable amount and to stipulate how this recoverable amount is to be determined.
scope of application
IAS 36 applies to all assets with the following exceptions: [IAS 36.2]
- Inventories (see IAS 2)
- Assets from long-term contract manufacturing (see IAS 11)
- Deferred tax assets (see IAS 12)
- Employee benefit asset (see IAS 19)
- Financial assets (see IAS 39)
- Investment property measured at fair value (see IAS 40)
- Certain agricultural assets measured at fair value (see IAS 41)
- Assets from insurance contracts (see IFRS 4)
- Assets held for sale (see IFRS 5)
So IAS 36 applies to the following assets, among others:
- Machines and machine systems
- Assets held as financial investments and valued at acquisition or production cost
- Intangible assets
- Company Value
- Investments in subsidiaries, associated companies and joint ventures
- Assets valued at revaluation amounts in accordance with IAS 16 and IAS 38
Depreciation: An asset is impaired if the book value of the asset exceeds its recoverable amount.
Book value: The amount at which an asset is recognized in the balance sheet after deducting all accumulated depreciation (amortization) and all accumulated impairment losses.
Achievable amount: The recoverable amount is the higher of the two amounts from the fair value less costs to sell and the value in use of an asset.
Fair value: The amount for which an asset can be exchanged between knowledgeable, willing and mutually independent business partners. (see IFRS 13Measurement of the fair value)
Use value: Present value of the estimated future cash flows expected from:
- continued use of an asset; and
- its disposal at the end of its useful life.
Identification of a potentially impaired asset
On each balance sheet date, all assets are to be checked for indications as to whether the asset could be impaired in value (i.e. that its book value could exceed the higher of the fair value less costs to sell and its value in use). IAS 36 contains a list of external and internal indicators of impairment. If there is any indication that an asset is impaired, then the asset's recoverable amount must be calculated. [IAS 36.9]
The recoverable amounts of the following types of intangible assets must be determined annually, regardless of whether there are any indications that the asset may be impaired. In some cases, the current detailed recoverable amount calculation from a previous period can be used to test an asset for impairment in the current period: [IAS 36.10]
- Intangible assets with an indefinite useful life.
- Intangible assets not yet available for use.
- Goodwill acquired in a business combination.
Indications of an impairment
External sources of information:
- Decrease in market value
- Adverse developments in the technical, market-related, economic or legal environment
- Rise in market rates
- The company's stock market price is below the book value
Internal sources of information:
- Obsolescence or physical damage
- Adverse developments in the scope or manner of the use of an asset, for example due to the closure or plans to discontinue or restructure the associated business area (see also IFRS 5), as well as other indicators that lead to a reassessment of the useful life - this also includes the change in the expectation of a indefinable to a definable useful life).
- The economic profitability of an asset is worse than expected.
- For investments in subsidiaries, joint ventures or associated companies: The book value is higher than the book value of the assets of the recipient of the investment or a dividend exceeds the total income of the recipient of the investment.
The list is not exhaustive. The criterion of materiality must also be observed. [IAS 36.13] In addition, an indication of an impairment of the asset can also be an indication that the expected useful life, depreciation method or the residual value would have to be checked and adjusted. [IAS 36.17]
Determination of the recoverable amount
- If the fair value less costs to sell is higher than the book value, it is not necessary to calculate the other value. The asset is then not impaired. [IAS 36.19]
- If the fair value less costs to sell cannot be determined, then the recoverable amount is the value in use. [IAS 36.20]
- For assets that are available for sale, the recoverable amount is the fair value less costs to sell. [IAS 36.21]
Fair value less costs to sell
- The fair value is determined in accordance with IFRS 13Measurement of the fair value certainly.
- Selling costs are only the additional direct costs (no costs already incurred or overheads). [IAS 36.28]
Value in use
The calculation of the value in use must include the following elements: [IAS 36.30]
- An estimate of the future cash flows that the company expects to obtain from the asset in transactions with third parties;
- Expectations about changes in the amount or timing of these future cash flows;
- The time value of money, measured using the current risk-free interest rate;
- The price of taking on the uncertainty inherent in the asset;
- other factors, such as insolvency, that market participants would include in pricing the future cash flows that the company expects to obtain from the asset.
The planning of the cash flows must be based on reasonable and justifiable assumptions, on the most recent financial plans / forecasts and an extrapolation for periods following the financial plans / forecasts. [IAS 36.33] IAS 36 assumes that financial plans and forecasts should not exceed a period of 5 years; for periods after this 5-year period, extrapolate from previous financial plans. [IAS 36.35] Management must assess the plausibility of its assumptions by examining the reasons for discrepancies between past financial plans and actual cash flows. [IAS 36.34]
The financial plans must relate to the asset in its current condition - future restructurings that the company is not required to undertake and expenses for improving or extending the performance of the asset must not be anticipated. [IAS 36.44]
The cash flow estimates must not include any cash inflows or outflows from financing activities or tax (repayments). [IAS 36.50]
When determining the value in use, the discount rate applied must be a pre-tax rate that reflects market assessments of the time value of money and the specific risk of the asset. [IAS 36.55]
The discount rate must not reflect risks for which the future cash flows have been adjusted and should correspond to the return expected by investors if they could opt for an investment that generates the same cash flows as those expected from the asset. [IAS 36.56]
For an impairment of an individual asset or inventory of assets, the discount rate represents the interest rate that the company would have to pay to borrow money to purchase that particular asset or inventory of assets in a market transaction at this point in time.
If a market-determined asset-specific interest rate is not available, a substitute value must be used that takes into account the time value of money over the useful life of the asset as well as the country risk, the currency risk, the price risk and the cash flow risk. The following factors would be taken into account: [IAS 36.57]
- The company's own weighted cost of capital;
- The company's marginal leverage; and
- Other market-related debt capital rates.
Recognition of an impairment loss
- An impairment loss must always be recognized if the recoverable amount is below the book value. [IAS 36.59]
- The impairment loss is recognized as an expense in the income statement (unless it relates to a revalued asset where changes in value are recognized directly in equity). [IAS 36.60]
- The depreciation is to be adjusted for future periods. [IAS 36.63]
The recoverable amount must be determined for the individual asset if this is possible. [IAS 36.66]
If it is not possible to determine the recoverable amount for the individual asset (the higher of the two amounts from the fair value less costs to sell and the value in use), then the recoverable amount for the cash-generating unit (cash generating unit, CGU) of the asset. [IAS 36.66] A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. [IAS 36.6]
Impairment of goodwill
Goodwill must be checked for impairment annually. [IAS 36.96]
In order to test goodwill for impairment, it must be allocated to all cash-generating units of the acquirer, or to groups of cash-generating units that are expected to benefit from the synergies of the merger, regardless of whether they are other Assets or liabilities of the acquired company have been assigned to these units or groups of units. Each unit or group of units to which the goodwill allocated in this way must be: [IAS 36.80]
- Represent the lowest level within the company for which goodwill is monitored for internal management purposes; and
- Must not be larger than a segment based on the primary and secondary reporting format of the company, which according to IFRS 8Business segments was determined.
A cash-generating unit to which the goodwill has been allocated must be tested for impairment at least once a year by comparing the book value of the unit, including the goodwill, with the recoverable amount of the unit: [IAS 36.90]
- If the recoverable amount of the unit exceeds the book value of the unit, then the unit and the allocated goodwill are not impaired.
- If the book value of the unit exceeds the unit's recoverable amount, the company must record an impairment loss.
The impairment loss is allocated to the carrying amounts of the assets of the unit (group of units) in the following order: [IAS 36.104]
- First, the book value of all goodwill allocated to the cash-generating unit (group of units) must be reduced; and
- then the book value of the other assets of the unit (group of units) must be reduced in proportion to their total book value.
The book value of an asset may not be reduced below the higher of the following three values: [IAS 36.105]
- Its fair value less costs to sell (if determinable);
- Its value in use (if determinable); and
If the above rule is applied, the further allocation of the impairment loss is made proportionally to the other assets of the unit (group of units).
- The same method is to be used as for the determination of impairments: Review on each reporting date whether there are any indications that an impairment has been reversed. If so, the amount of the reversal is to be determined. [IAS 36.110]
- A write-up may not be recorded if this results solely from the interest effect. [IAS 36.116]
- The book value after the write-up must not exceed the book value that would have resulted (taking into account amortization or depreciation) had it not been for a previous decrease in value. [IAS 36.117]
- The increase in value is to be recognized in profit or loss in the income statement. [IAS 36.119]
- After a write-up, the depreciation or amortization expense must be adjusted accordingly. [IAS 36.121]
- The reversal of goodwill is not permitted. [IAS 36.124]
Notes per group of assets: [IAS 36.126]
- Amount of the impairment expenses recognized in profit or loss during the period;
- Amount of the reversals recognized as expenses or income during the period;
- In which items of the statement of comprehensive income the changes affecting net income were recorded;
- Amount of impairment losses on revalued assets that were recognized in other comprehensive income during the period;
- Amount of write-ups for revalued assets that were recognized in other comprehensive income during the period.
Notes per segment: [IAS 36.129]
- Recognized impairments
- Recorded write-ups
If an individual impairment loss (reversal) is material, the following information must be provided: [IAS 36.130]
- The events and circumstances that led to the impairment loss.
- The amount of effort.
- Type and segment to which the impaired asset belongs.
- For a cash-generating unit: description, amount of the impairment loss (reversal) and changes in the composition for each group of assets and segment.
- If the recoverable amount is the fair value less costs to sell, the level of the fair value hierarchy (from IFRS 13Measurement of the fair value), on which the valuation is carried out, the valuation methods used to determine the fair value less costs to sell, and the key assumptions on which valuations at the second and third levels of the hierarchy were based. *
- If the recoverable amount was determined on the basis of the value in use or the fair value less costs to sell using a present value method *, the discount rate must be stated.
* Changes published in May 2013 that are effective for reporting periods beginning on or after January 1, 2014.
If the recognized impairment losses (reversals) are material for the financial statements as a whole, the following must be disclosed: [IAS 36.131]
- The main groups of assets that are affected
- The main events and circumstances
Detailed information is to be given about the estimates that were used to determine the recoverable amount of cash-generating units with goodwill or intangible assets with an indefinite useful life. [IAS 36.134-35]
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