International Financial Reporting Standards_guide.pdf

Chapter 26 Impairment of Assets (IAS 36) 289
■ are based on the most recent financial budgets and forecasts approved by management
for a maximum period of five years; and
■ base any projections beyond the period covered by the most recent budget and forecasts
on budgets and forecasts that use a steady or declining growth rate, unless an
increasing rate can be justified.
26.4.7 The pretax discount rate must reflect current market assessments of the time value
of money and the risks specific to the asset or cash-generating unit. The discount rate should
not reflect risks for which future cash flows have been adjusted.
26.4.8 If the recoverable amount of an asset is less than its carrying amount, the carrying
amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment
loss.
26.4.9 An impairment loss should be recognized in profit or loss unless the asset is carried
at the revalued amount in accordance with IAS 16 (see chapter 10) or IAS 38 (see chapter 13),
in which case it should be dealt with as a revaluation decrease. After recognition of the
impairment loss, the depreciation charge for subsequent periods is based on the revised carrying
amount.
26.4.10 An entity should reassess at each reporting date whether there is any indication
that an impairment loss recognized in a prior period no longer exists or has decreased. If any
such indication exists, the entity should estimate the recoverable amount of that asset. An
impairment loss recognized in prior periods should be reversed if, and only if, there has been
a change in the estimates used to determine recoverable amount since the last impairment
loss was recognized. If that is the case, the carrying amount of the asset should be increased
to its recoverable amount, but only to the extent that it does not increase the carrying amount
of the asset above the carrying amount that would have been determined for the asset (net
of amortization or depreciation) if no impairment loss had been recognized in prior years.
26.4.11 For the purpose of impairment testing, goodwill should be allocated to each of the
acquirer’s cash-generating units or groups of cash-generating units that are expected to benefit
from a combination, regardless of whether other assets or liabilities of the acquiree are
allocated to that unit or those units. A cash-generating unit is the smallest identifiable group
of assets that generates cash inflows from continuing use that are largely independent of the
cash inflows from other assets or groups of assets.
26.4.12 A recoverable amount should be estimated for an individual asset. If it is not possible
to do so, an entity should determine the recoverable amount for the cash-generating
unit to which the asset belongs. The recoverable amount of a cash-generating unit is determined
in the same way as that of an individual asset. The entity should identify all the corporate
assets that relate to the cash-generating unit under review. When corporate assets
cannot be allocated to cash-generating units on a reasonable and consistent basis, the entity
should identify the units to which the corporate assets can be allocated on a reasonable and
consistent basis and perform the impairment test for those units.
26.4.13 An impairment loss for a cash-generating unit should be allocated to reduce the
carrying amount of the assets of the unit in the following order:
■ goodwill, and
■ other assets in the cash-generating unit on a pro rata basis.
The carrying amount of any asset in the cash-generating unit should not be reduced below
its recoverable amount, which is the highest of its fair value less costs to sell or its value in
use and zero.