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Chapter
28 /
Impairment ofAssets (lAS 36)
311
Goodwill
Property
Plant and equipment
(2) The smallest group of cash-generating units should be identified that includes the cash–
generating unit under review and to which part of the corpora te asse ts can be reasonably
allocated.
(3) Th is gro up of cash-generating un its should then be tested for impairmen t.
Facts
An entity has two cash-generating units, X and Y. There is no goodwill within the units' carrying values.
The carrying values are X $10 million and Y $15 million. The entity has an office building that has not
been included in the above values and can be allocated to the units on the basis of their carrying values.
The office building has a carrying value of $5 million.
The recoverable amounts are based on value-in-use of $9 million for X and $19 million for Y.
Required
Determine whether the carrying values of X and Y are impaired.
Solution
K
r
Total
Carrying value
10
15
25
Office buildin g
(l
0:15)
...l
.3-
.2-
12
18
30
Recoverabl e amount
..2
12
Imp airment loss
..3.
.n
The impairment loss will be allocated on the basis of 2/12 against the building ($0.5 million) and 10/12
against the other assets ($2.5 million).
14. ALLOCATION OF IMPAIRMENT LOSS
14.1
Any imp airment loss ca lculated for a cas h-gene rating unit sho uld be allocated to reduce the
carrying amount of the asset in this order:
(a) The carrying amo unt of goodwill should be fir st reduced, then the carryi ng amount of othe r
assets of the uni t shou ld be reduced on a pro rata basis determined by the rel ative carrying
value of each ass et.
(b) Any reductions in the carrying amount of the individual asse ts should be treated as impair–
ment losses. The carrying amount of any indivi dual ass e t should not be reduced bel ow the
highest of its fair va lue less co st to sell, its va lue-in-use, and zero.
14.2 If
thi s rule is applied, the impai rme nt loss not allocated to the individual asset
will
be allo–
cated on a pro rata basis to the othe r assets of the gro up.
Facts
A cash-generating unit has these net assets:
$In
10
20
30
60
The recoverable amount has been determined as $45 million.
Required
Allocate the impairment loss to the net assets of the entity.