Suppose, you bought a

Computer(Desktop) in January
01, 2012 by Tk. 30,000. The
Following Information is about the
computer:

Estimated useful Life

time
Accumulated
Depreciation(Dec 31,
2012)

3 years
10,000

Impairments
When the carrying amount of an asset is not
recoverable, a company records a write-off referred to as
an impairment.

Factors responsible for impairment

Significant Change in technological environment.

Significant Change in market environment.
Significant Change in legal environment.
Significant Change in economic environment.

1.
1.
2.
2.

Impairments
Impairments
Accounting
Accounting treatment
treatment differs
differs
Assets
Assets held
held for
for use
use

Tangible
Intangible
Tangible Asset
Asset
Intangible
Intangible
Intangible with
with
with
with finite
finite indefinite
indefinite
useful
useful lives
lives useful
useful lives
lives

Assets
Assets held
held for
for sale
sale

Goodwill
Goodwill
acquired
acquired
by
by
business
business
combina
combina
tion
tion

1.
1.
2.
2.

Test for impairment of

value when it is suspected
that book value may not be
recoverable

Test for
impairment of
value at least
annually.
differs.

Accounting
Accounting treatment
treatment differs.

Assets
Assets held
held for
for use
use

Tangible
Tangible Asset
AssetIntangibl
Intangibl
Intangible
e
Intangible
e
with
with
with finite
finite
with
useful
indefinite
useful lives
lives
indefinite
useful
useful
lives
lives

Assets
Assets held
held for
for sale
sale

Goodwill
Goodwill
Test for impairment
of value when
considered for sale.

How
How to
to measure
measure Impairment?
Impairment?
IFRS
Carrying amount
-Recoverable
amount
=Impairment
Loss

Carrying amount
U.S. GAAP
-Fair Value
=Impairment
Loss
However,
impairment losses
are recognized
only when thecarrying amount

>recoverable

Recoverable
Recoverable Amount
Amount
IFRS
Fair Value less
Cost to Sell
OR
Value in use

The Higher
Amount

U.S. GAAP

Undiscounted
Expected
Future Cash
flow

Fair Value
The Amount Obtainable from the sale
of an asset in an arms length
transaction between knowledgeable
and willing parties.
Value in Use
The Present Value of the Future
Cash flows expected to be derived
from an asset

ABC Co. has a machine which is used to

produce a single product.
The demand for this product has
declined substantially since the
introduction of a competing product.
The company has assembled the following
information with respect to the machine:

Particular

Amount
(TK.)

Carrying Amount

18,000

Undiscounted expected Future Cash

flows

19,000

Present Value of expected Future

Cash flows

16,000

Fair Value if sold

17,000

Costs to sell

2,000

Recoverable
Amount Amount
Recoverable

Recoverable Amount
IFRS

U.S. GAAP

Fair Value less Cost to

Sell
Fair Value

17,000

Cost to Sell

(2,000)
15,000

Value in use
Present Value
of expected
Future Cash
flows

16,000

The Higher Amount=

16,000

Undiscounted
Expected
Future Cash
flow

TK. 19,000

Measuring Impairment Loss

IFRS

U.S. GAAP

Carrying amount
Carrying
-Recoverable
18,000
Amount
amount
Recoverable
Amount
Impairment
Loss

(16,000)
2,000

This loss will not be

recognized as
Recoverable
amount (19000) is
Carrying
higher than 18,000
Amount
Carrying amount
(18000)
Fair Value
(17,000)

Carrying amount
-Fair Value
Impairment
Loss

1,000

Accounting
Accounting Treatment
Treatment For
For Impairment
Impairment
Asset which is at
Historical Cost

Asset which has been

previously revalued

Recognized as
expense in the
income statement.

First Step
Set off against
revaluation reserve
Second Step
Excess amount is
recognized as loss
in income
statement.

The following details relate to a freehold

property of a company which follow IFRS:
Amount(T
k.)
Carrying Amount (at date of
1,00,000
revaluation)
Revalued to
1,60,000
Amount recognized in the
60,000
Revaluation reserve
Current Carrying amount
1,50,000
Fair
Value
60,000
Impairment
Loss
Present
Value of
the expected
Carrying
Amount
1,50,000
80,000
futureRecoverable
cash flows Amount
(80,000)
70,000

Revaluation Reserve

Dr.

60,0
00

Income Statement

Dr. 10,00
0
Now, Suppose The Asset has not been
previously Property
revalued. So, Cr.
What should
70,00
(carrying
0
be the treatment?
Amount)
Income Statement

Property
(carrying

Dr.

Cr.

70,0
00
70,00
0

Impairments
Impairments

Indefinite Life
Intangibles
acquired in a business
Combination

Other Indefinite
Life Intangibles

Step
Step 1
1 If
If BV
BV of
of
subsidiary
subsidiary (including
(including
goodwill)>
goodwill)> FV,
FV,
impairment
impairment indicated.
indicated.
Step
2
Loss
Step 2 Loss =
= BV
BV of
of
goodwill
goodwill less
less implied
implied
value
value of
of goodwill.
goodwill.

One-step
One-step Process
Process
If
If BV
BV of
of asset
asset >
>
FV,
FV, recognize
recognize
impairment
impairment loss.
loss.

Goodwil
l

Impairment of Value Goodwill

Parent
Parent Company
Company purchased
purchased Sub
Sub Company
Company for
for $500
$500
million
million at
at aa time
time when
when the
the fair
fair value
value of
of Subs
Subs
net
net identifiable
identifiable assets
assets were
were $400
$400 million.
million. Sub
Sub
continued
continued to
to operate
operate as
as aa separate
separate company.
company. At
At
the
the end
end of
of the
the next
next year,
year, Parent
Parent did
did aa goodwill
goodwill
impairment
impairment test
test revealing
revealing the
the following:
following:

Goodwill
impaired?

Impairment of Assets
Held for Sale
Ceases to be used and management
intents to sell it.
Reclassified as non-current asset held
for sale.
Tested for impairment.
Impairment =
loss

Book
value

Fair value less

cost to sell

Carrying
Amount before
500,000
Reversals/Restoration
of
Impairment(2011)
Impairment
Loss
Impairment Loss
100,000
Fair value in 2012
600,000
IFRS
U.S. GAAP
Asset Held for sale
Asset Held for Use

Only for Asset Held for Sale

Only Impairment loss

can be restored.

Can be restored to the

recoverable amount.

Asset Held for Sale

Asset Held for Sale

Tk. 200,000
Asset Held for Use

Tk. 100,000

Asset Held for Use

Tk. 100,000

Nil