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5 Example: Recoverable amount and carrying amount
controlled by the parent. Part of the recoverable amount of the cash-generating unit is attributable to the
non-controlling interest in goodwill.
Where goodwill relates to a cash-generating unit but has not been allocated to that unit, the unit is tested
for impairment by comparing its carrying amount (excluding goodwill) with its recoverable amount. The
entity must recognise an impairment loss if the carrying amount exceeds the recoverable amount.
The annual impairment test may be performed at any time during an accounting period, but must be
performed at the same time every year.
3.7 Example: Non-controlling interest
On 1 January 20X4 a parent acquires an 80% interest in a subsidiary for $1,600,000, when the identifiable
net assets of the subsidiary are $1,500,000. The subsidiary is a cash-generating unit.
At 31 December 20X4, the recoverable amount of the subsidiary is $1,000,000. The carrying amount of
the subsidiary's identifiable assets is $1,350,000.
Calculate the impairment loss at 31 December 20X4.
At 31 December 20X4 the cash-generating unit consists of the subsidiary's identifiable net assets
(carrying amount $1,350,000) and goodwill of $400,000 (1,600,000 –80% $1,500,000)). Goodwill is
grossed up to reflect the 20% non-controlling interest.
Unrecognised non-controlling interest
3.8 Corporate assets
Corporate assets are group or divisional assets such as a head office building, EDP equipment or a
research centre. Essentially, corporate assets are assets that do not generate cash inflows independently
from other assets, hence their carrying amount cannot be fully attributed to a cash-generating unit under
In testing a cash generating unit for impairment, an entity should identify all the corporate assets that
relate to the cash-generating unit.
If a portion of the carrying amount of a corporate asset can be allocated to the unit on a
reasonable and consistent basis, the entity compares the carrying amount of the unit (including the
portion of the asset) with its recoverable amount.
If a portion of the carrying amount of a corporate asset cannot be allocated to the unit on a
reasonable and consistent basis, the entity:
Compares the carrying amount of the unit (excluding the asset) with its recoverable amount
and recognises any impairment loss.
Identifies the smallest group of cash-generating units that includes the cash-generating unit
to which the asset belongs and to which a portion of the carrying amount of the asset can
be allocated on a reasonable and consistent basis.
Compares the carrying amount of that group of cash-generating units, (including the
portion of the asset allocated to the group of units) with the recoverable amount of the
group of units and recognises any impairment loss.
3: Non-current assets Part B Accounting standards
3.9 Accounting treatment of an impairment loss
If, and only if, the recoverable amount of an asset is less than its carrying amount in the statement of
financial position, an impairment loss has occurred. This loss should be recognised immediately.
The asset's carrying amount should be reduced to its recoverable amount in the statement of
The impairment loss should be recognised immediately in profit or loss (unless the asset has been
revalued in which case the loss is treated as a revaluation decrease; see Paragraph 3.4).
After reducing an asset to its recoverable amount, the depreciation charge on the asset should then be
based on its new carrying amount, its estimated residual value (if any) and its estimated remaining useful
An impairment loss should be recognised for a cash generating unit if (and only if) the recoverable
amount for the cash generating unit is less than the carrying amount in the statement of financial position
for all the assets in the unit. When an impairment loss is recognised for a cash generating unit, the loss
should be allocated between the assets in the unit in the following order.
First, to the goodwill allocated to the cash generating unit
Then to all other assets in the cash-generating unit, on a pro rata basis
In allocating an impairment loss, the carrying amount of an asset should not be reduced below the highest
Its fair value less costs of disposal
Its value in use (if determinable)
Any remaining amount of an impairment loss should be recognised as a liability if required by other IASs.
3.10 Example 1: Impairment loss
A company that extracts natural gas and oil has a drilling platform in the Caspian Sea. It is required by
legislation of the country concerned to remove and dismantle the platform at the end of its useful life.
Accordingly, the company has included an amount in its accounts for removal and dismantling costs, and
is depreciating this amount over the platform's expected life.
The company is carrying out an exercise to establish whether there has been an impairment of the
Its carrying amount in the statement of financial position is $3m.
The company has received an offer of $2.8m for the platform from another oil company. The bidder
would take over the responsibility (and costs) for dismantling and removing the platform at the end
of its life.
The present value of the estimated cash flows from the platform's continued use is $3.3m.
The carrying amount in the statement of financial position for the provision for dismantling and
removal is currently $0.6m.
What should be the value of the drilling platform in the statement of financial position, and what, if
anything, is the impairment loss?
Fair value less costs of disposal
Value in use
PV of cash flows from use less the carrying amount of
the provision/liability = $3.3m – $0.6m = $2.7m
Higher of these two amounts, ie $2.8m
The carrying value should be reduced to $2.8m
Part B Accounting standards 3: Non-current assets
3.11 Example 2: Impairment loss
A company has acquired another business for $4.5m: tangible assets are valued at $4.0m and goodwill at
An asset with a carrying value of $1m is destroyed in a terrorist attack. The asset was not insured. The
loss of the asset, without insurance, has prompted the company to estimate whether there has been an
impairment of assets in the acquired business and what the amount of any such loss is. The recoverable
amount of the business is measured at $3.1m.
The recoverable amount of the business (a single cash generating unit) is measured as $3.1m. There has
consequently been an impairment loss of $1.4m ($4.5m – $3.1m).
The impairment loss will be recognised in profit or loss. The loss will be allocated between the assets in
the cash generating unit as follows:
A loss of $1m can be attributed directly to the uninsured asset that has been destroyed.
The remaining loss of $0.4m should be allocated to goodwill.
The carrying value of the assets will now be $3m for tangible assets and $0.1m for goodwill.
3.12 Example: Impairment loss and revaluation
The Antimony Company acquired its head office on 1 January 20W8 at a cost of $5.0 million (excluding
land). Antimony’s policy is to depreciate property on a straight-line basis over 50 years with a zero
On 31 December 20X2 (after five years of ownership) Antinomy revalued the non-land element of its head
office to $8.0 million. Antinomy does not transfer annual amounts out of revaluation reserves as assets
are used: this is in accordance with the permitted treatment in IAS 16 Property, plant and equipment.
In January 20X8 localised flooding occurred and the recoverable amount of the non-land element of the
head office property fell to $2.9 million.
What impairment charge should be recognised in the profit or loss of Antimony arising from the
impairment review in January 20X8 according to IAS 36 Impairment of assets?
IAS 36.60 and 61 (also IAS 16.40) require that an impairment that reverses a previous revaluation should
be recognised through other comprehensive income to the extent of the amount in the revaluation surplus
for that same asset. Any remaining amount is recognised through profit or loss. Thus:
The carrying amount at 31 December 20X2 is 45/50 $5.0m = $4.5m
The revaluation reserve created is $3.5m (ie $8.0m – $4.5m)
The carrying amount at 31 December 20X7 is 40/45 $8.0m = $7.1m
The recoverable amount at 31 December 20X7 is $2.9m
The total impairment charge is $4.2m (ie $7.1m – $2.9m)
Of this, $3.5m is a reversal of the revaluation reserve, so only $0.7 million is recognised through
profit or loss.
3.13 Reversal of an impairment loss
The annual review of assets to determine whether there may have been some impairment should be
applied to all assets, including assets that have already been impaired in the past.
3: Non-current assets Part B Accounting standards
In some cases, the recoverable amount of an asset that has previously been impaired might turn out to be
higher than the asset's current carrying value. In other words, there might have been a reversal of some of
the previous impairment loss.
Rule to learn
The reversal of the impairment loss should be recognised immediately as income in profit or loss
for the year.
The carrying amount of the asset should be increased to its new recoverable amount.
An impairment loss recognised for an asset in prior years should be recovered if, and only if, there has
been a change in the estimates used to determine the asset's recoverable amount since the last
impairment loss was recognised.
The asset cannot be revalued to a carrying amount that is higher than its value would have been if the
asset had not been impaired originally, ie its depreciated carrying value had the impairment not taken
place. Depreciation of the asset should now be based on its new revalued amount, its estimated residual
value (if any) and its estimated remaining useful life.
An exception to the rule above is for goodwill. An impairment loss for goodwill should not be reversed in
a subsequent period.
Reversal of impairment loss
A cash generating unit comprising a factory, plant and equipment etc and associated purchased goodwill
becomes impaired because the product it makes is overtaken by a technologically more advanced model
produced by a competitor. The recoverable amount of the cash generating unit falls to $60m, resulting in
an impairment loss of $80m, allocated as follows:
Patent (with no market value)
Tangible long-term assets
After three years, the entity makes a technological breakthrough of its own, and the recoverable amount of
the cash generating unit increases to $90m. The carrying amount of the tangible long-term assets had the
impairment not occurred would have been $70m.
Calculate the reversal of the impairment loss.
The reversal of the impairment loss is recognised to the extent that it increases the carrying amount of the
tangible non-current assets to what it would have been had the impairment not taken place, ie a reversal of
the impairment loss of $10m is recognised and the tangible non-current assets written back to $70m.
Reversal of the impairment is not recognised in relation to the goodwill and patent because the effect of
the external event that caused the original impairment has not reversed – the original product is still
overtaken by a more advanced model.
3.14 Impairment loss and goodwill
IFRS 3 (revised) allows two methods of initially valuing the non-controlling interest in an entity:
As a share of the net assets of the entity at the acquisition date, or
At fair value
Part B Accounting standards 3: Non-current assets