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Wiley IFRS: Practical Implementation Guide and Workbook
Practical Insight
Zen tel NY, a Belguim entity, reco gnized an impairment of € I. 2 million and disclo ses that it
calculates the value-in-use of goodwill using discounted cash flow s and a market-based dis–
co unt rate , although there is no discl osure of the rate used in its 2003 accounts.
9. RECOGNITION AND MEASUREMENT OF AN IMPAIRMENT LOSS
9.1 Where the recoverable amount of an asset is less than its carrying amount, the carrying
amount will be reduced to its recoverable amount. This reduction is the impairment loss.
9.2 The impairment loss should be recognized in profit or loss unles s the asset is carried at a re–
valued amount, in which case the impairment loss is treated as a revaluation decrease in accordance
with the respecti ve Standard.
9.3 If the imp airment loss is gre ate r than the carrying amount of the ass et to which it relates, the
entity shall recognize a liability if it is the requirement of another Stand ard.
9.4 Where an impairment loss has been recog nized, any depreci ation charged for the ass et will be
adj usted to reflect the asset' s revi sed carrying value .
10. CASH-GENERATING UNITS
10.1
If an asset appears to be impaired, the recoverable amount for that asset should be calcu–
lated. However, if it is not possible to calculate the recoverable amount of an individual asset , the
recoverable amount of the cash- gen erating unit to wh ich the asset belongs should be calculated.
10.2 A cash-ge nerating unit is the smalles t identifiable gro up of asset s that ca n ge nerate cas h
flow s from co ntinuing use and that are mainly independent of the cash flows from other assets or
groups of asset s.
Case Study 5
Facts
A manufacturing entity owns several vehicles. The vehicles are several years old and could be sold only
for scrap value. They do not generate cash independently from the entity.
Required
How will the recoverable value of the vehicles be determined?
Solution
The entity cannot estimate the recoverable amount of the vehicles because their value-in-use cannot be
determined separately, and it will be different from the scrap value. Therefore, the entity would incorpo–
rate the vehicles into the cash-generating unit to which they belong and estimate the recoverable amount
of that cash-generating unit.
10.3
Cash- generating unit s should be identi fied on a consistent basis, period to period, for the
same asset or types of asset unle ss the entity can j ustify a change.
Case Study 6
Facts
A railway entity has a contract with the government that requires service on each of
10
different routes.
The trains operating on each route and the income from each route can be identified easily. Two of the
routes make substantially more profit than the others. The entity also operates a taxi service, a bus com–
pany, and a travel agency.
Required
What is the lowest level of cash-generating units that can be used by the entity?