The main contents of the chapter consist of the following: The policy is well known and creates a valid expectation, there is a constructive obligation, it is probable some refunds will be made, these can be measured using expected values. | Revise lecture 15 1 Impairment of assets Recognition and measurement of an impairment Where there is an indication of impairment, an impairment review should be carried out: The recoverable amount should be calculated The asset should be written down to recoverable amount The impairment loss should be immediately recognised in the income statement 2 Impairment of assets The only exception to this is if the impairment reverses a previous gain taken to the revaluation reserve. In this case, the impairment will be taken first to the revaluation reserve until the revaluation gain is reversed and then to the income statement. 3 Cash generating units (CGUs) What is a CGU? When assessing the impairment of assets it will not always be possible to base the impairment review on individual assets. 4 Cash generating units (CGUs) The value in use calculation will be impossible on a single asset because the asset does not generate distinguishable cash flows. In this case, the impairment calculation should be based on a CGU. 5 Cash generating units (CGUs) Definition of a CGU A CGU is defined as the smallest identifiable group of assets which generates cash inflows independent of those of other assets Example: In a restaurant chain, the smallest group of assets might be the assets within a single restaurant, but with a mining company, all the assets of the company might make up a single cash generating unit. 6 Provisions, contingent liabilities and assets (IAS 37) 7 Provisions The problem Until the issue of IAS 37 provisions, contingent liabilities and contingent assets, there was no accounting standard covering the general topic of provisions. This led to various problems. 8 Provisions Provisions were often recognised as a result of an intention to make expenditure, rather than an obligation to do so. Several items could be aggregated into one large provision that was reported as an exceptional item (the ‘big bath’). Inadequate disclosure meant that in some cases it was difficult | Revise lecture 15 1 Impairment of assets Recognition and measurement of an impairment Where there is an indication of impairment, an impairment review should be carried out: The recoverable amount should be calculated The asset should be written down to recoverable amount The impairment loss should be immediately recognised in the income statement 2 Impairment of assets The only exception to this is if the impairment reverses a previous gain taken to the revaluation reserve. In this case, the impairment will be taken first to the revaluation reserve until the revaluation gain is reversed and then to the income statement. 3 Cash generating units (CGUs) What is a CGU? When assessing the impairment of assets it will not always be possible to base the impairment review on individual assets. 4 Cash generating units (CGUs) The value in use calculation will be impossible on a single asset because the asset does not generate distinguishable cash flows. In this case, the impairment calculation
