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IFRS The procedure foresting for impairment

IFRS The procedure foresting for impairment

IFRS The procedure foresting for impairment: Identifying an asset that may be impaired An entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. Irrespective of whether there is any indication of impairment, an entity shall also:

  1. Test an intangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This impairment test may be performed at any time during an annual period, provided it is performed at the same time every year.
  2. Different intangible assets may be tested for impairment at different times. However, if such an intangible asset was initially recognised during the current annual period, that intangible asset shall be tested for impairment before the end of the current annual period.
  3. Test goodwill acquired in a business combination for impairment annually in accordance with paragraphs 80-99. If there is any indication that an asset may be impaired, recoverable amount shall be estimated for the individual asset.
IFRS The procedure foresting for impairment

IFRS The procedure foresting for impairment

IFRS The procedure foresting for impairment

Introduction

  1. In the July 2012 meeting, the IFRS Interpretations Committee (the Committee) received a report on the issues that have been referred to the IASB over the last several years and that have not yet been addressed. The Committee asked the staff to update the analysis and outreach on six issues so that they can discuss whether or not the Committee should add these to its agenda.
  2. One of these issues is whether an investor, in its separate financial statements, should apply the provisions of IAS 36 Impairment of Assets or IAS 39 Financial Instruments: Recognition and Measurement to test its investments in subsidiaries, joint ventures, and associates („investments‟) for impairment.
  3. The Committee discussed this issue in its May1 2009 and July2 2009 meetings, with the July 2009 IFRIC Update reporting that: The IFRIC noted that IAS 36 Impairment of Assets provides clear guidance that its requirements apply to impairment losses of investments in associates when the associate is accounted for using the equity method. However, in its separate financial statements, the investor may account for its investment in an associate at cost. The IFRIC concluded that it is not clear whether in its separate financial statements the investor should determine impairment in accordance with IAS 36 or IAS 39 Financial Instruments: Recognition and Measurement. In view of the existing guidance in IFRSs, the IFRIC concluded that significant diversity is likely to exist in practice on this issue. The IFRIC decided that it could be best resolved by referring it to the IASB. Therefore, the IFRIC decided not to add this issue to its agenda.
  4. In the Exposure Draft of proposed Improvement to IFRSs , the IASB proposed that in its separate financial statements the investor shall apply the provisions of IAS 39 to test its investments in subsidiaries, jointly controlled entities and associates for impairment. The respondents to this Exposure Draft that commented directly on this issue were split evenly between responses in favour of the use of IAS 39 and responses in favour of the use of IAS 36.
  5. However, in February 2010, the IASB decided to remove from the annual improvements project, without finalisation, the proposed amendment on the grounds that this issue should be reconsidered taking into account the broad replacement project for IAS 39.
  6. We performed outreach with national standard-setters and regulators on this topic in order to find out whether the issue is widespread and whether significant diversity in practice exists. The results of this outreach are included as part of the staff‟s analysis of this issue.
  7. The submission is reproduced.

IFRS The procedure foresting for impairment

Objective

(a) provide background information on the issue.

(b) provide an updated analysis of the issue, including a summary of the outreach responses received from national standard-setters and regulators.

(c) present an assessment of the issue against the Committee‟s agenda criteria and the annual improvements criteria.

(d) make a recommendation that the Committee should not take this issue onto its agenda.

(e) ask the Committee whether they agree with the staff recommendation.

IFRS The procedure foresting for impairment:

 Information

IAS 28 Investments in Associates and Joint Ventures (20113 ) provide guidance on the impairment of investments in associates and joint ventures in consolidated financial statements (ie associates and joint ventures accounted for using the equity method). That guidance states that IAS 39 is used to determine whether it is necessary to recognise any impairment loss, while IAS 36 is used to calculate the amount of any impairment loss. These paragraphs state that:

(a) the entity applies IAS 39 Financial Instruments: Recognition and Measurement to determine whether it is necessary to recognise any additional impairment loss with respect to its net investment in the associate or joint venture (IAS 28.40);

(b) the entire carrying amount of the investment is tested for impairment in accordance with IAS 36 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever application of the requirements in IAS 39 indicates that the investment may be impaired (IAS 28.42).

Consolidated and Separate Financial Statements (20084 ) permits an entity that prepares separate financial statements to account for investments in subsidiaries, jointly controlled entities and associates either at cost or in accordance with IAS 39. However, IAS 27 is silent on whether testing for

IFRS The procedure foresting for impairment

Impairment of those investments should apply the requirements of IAS 36 or IAS 39. 11. In accordance with the requirements of IAS 36, the amount of the impairment loss is measured as the difference between the carrying amount of an asset and its recoverable amount. The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use5 . 12. In accordance with the requirements of IAS 39 on the impairment of financial assets carried at cost, the amount of the impairment loss is measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment losses shall not be reversed (IAS 39.66). 13. Consequently, the two different impairment models summarised above (IAS 36 model and IAS 39 model) could be used in testing for impairment investments carried at cost in separate financial statements

IFRS The procedure foresting for impairment

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