Recognition of an impairment loss
An impairment loss is recognised whenever recoverable amount is below carrying amount. [IAS 36.59] The impairment loss is recognised as an expense (unless it relates to a revalued asset where the impairment loss is treated as a revaluation decrease). [IAS 36.60] Adjust depreciation for future periods. [IAS 36.63]
Cash-generating units
Recoverable amount should be determined for the individual asset, if possible. [IAS 36.66]
If it is not possible to determine the recoverable amount (fair value less costs of disposal and value in use) for the individual asset, then determine recoverable amount for the asset's cash-generating unit (CGU). [IAS 36.66] The CGU 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 should be tested for impairment annually. [IAS 36.96]
To test for impairment, goodwill must be allocated to each of the acquirer's cash-generating units, or groups of cash-generating units, that are expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated shall: [IAS 36.80]
represent the lowest level within the entity at which the goodwill is monitored for internal management purposes; and not be larger than an operating segment determined in accordance with IFRS 8 Operating Segments.
A cash-generating unit to which goodwill has been allocated shall be tested for impairment at least annually by comparing the carrying amount 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 carrying amount of the unit, the unit and the goodwill allocated to that unit is not impaired If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity must recognise an impairment loss.
The impairment loss is allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order: [IAS 36.104]
first, reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units); and then, reduce the carrying amounts of the other assets of the unit (group of units) pro rata on the basis.
The carrying amount of an asset should not be reduced below the highest of: [IAS 36.105]
its fair value less costs of disposal (if measurable) its value in use (if measurable) zero.
If the preceding rule is applied, further allocation of the impairment loss is made pro rata to the other assets of the unit (group of units).
Reversal of an impairment loss
Same approach as for the identification of impaired assets: assess at each balance sheet date whether there is an indication that an impairment loss may have decreased. If so, calculate recoverable amount. [IAS 36.110] No reversal for unwinding of discount. [IAS 36.116] The increased carrying amount due to reversal should not be more than what the depreciated historical cost would have been if the impairment had not been recognised. [IAS 36.117] Reversal of an impairment loss is recognised in the profit or loss unless it relates to a revalued asset [IAS 36.119] Adjust depreciation for future periods. [IAS 36.121] Reversal of an impairment loss for goodwill is prohibited. [IAS 36.124]
