Impairment of Assets

Non-current assets are measured in the financial statements at either cost or revalued amounts. FRS102 Section 27 Impairment of Assets requires an entity to measure the assets at no more than their recoverable amount (i.e., the higher of the fair value less cost to sell or value in use). The difference between the recoverable amount and carrying amount of the asset is recorded as impairment losses in the profit or loss.

An entity is required to performed detailed impairment assessment:

  1. At the end of each reporting period, if there are any indication of impairment for the individual assets or CGU (cash-generating unit). CGU is smallest identifiable group of assets that can generate its own cash flow independent from other assets or group of assets.
  2. Annual impairment test for the following type of assets, irrespective of whether there is an indication of impairment:
    1. Intangible assets with an indefinite useful life
    2. Intangible assets not yet available for use, and
    3. Goodwill acquired in a business combination

Impairment indicators

S27 provides a non-exhaustive list of external and internal indicators that entity should consider, summarised are as follows:

External indicators:

  • Market value declines
  • Negative changes in technology, markets, economy, or laws
  • Increase in market interest rate
  • Net assets of the company higher than market capitalisation

Internal indicators:

  • Obsolescence or physical damage
  • Asset is idle, part of restructuring or held for disposal
  • Worse economic performance than expected
  • For investments in subsidiaries, joint ventures or associates, the carrying amount is higher than the carrying amount of the investee’s assets

Determining recoverable amount

Recoverable amount is determined by the higher of fair value less cost to sell or value in use. If fair value less costs to sell cannot be determined, then recoverable amount is value in use. For assets to be disposed of, the recoverable amount is fair value less costs of disposal.

Impairment loss

If recoverable amount is higher than carrying amount, the asset is not impaired. Impairment loss is recognised when the recoverable amount is lower than the carrying amount of the asset.


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