IFRS Impairment Definition

[Trekker]

Under IFRS, an asset is impaired if: carrying value > recoverable amount
Recoverable amount is defined as the greater of ‘fair value less any selling costs’ AND the ‘value in use’.
Let’s say an asset has:
carrying value = 95
net fair value = 100
value in use = 90
By the definition above, the asset is NOT impaired - is this correct?
Just would like to confirm my understanding that both the ‘net fair value’ AND ‘value in use’ has to be greater for the asset to be impaired. Thanks.

 

[AndrewUNH]

not sure what “in use” refers to, you are correct if you are using the 100 as NRV or net recoverable value. So just think if you can recover more than the things worth (BV) then its NOT impaired, and vis versa.

 

[confused2010]

Impairment recorded is excess of carrying value over recoverable amt. recoverable amt is greater of fair value less selling costs and present value of expected future cash flows from the asset (value in use).
In your example the asset is not impaired.

 

[Trekker]

Thank you - that clears it up for me.

 

[R Cash]

Trekker Wrote:
——————————————————-
> Under IFRS, an asset is impaired if: carrying
> value > recoverable amount
>
> Recoverable amount is defined as the greater of
> ‘fair value less any selling costs’ AND the ‘value
> in use’.
>
> Let’s say an asset has:
> carrying value = 95
> net fair value = 100
> value in use = 90
>
> By the definition above, the asset is NOT impaired
> - is this correct?
>
> Just would like to confirm my understanding that
> both the ‘net fair value’ AND ‘value in use’ has
> to be greater for the asset to be impaired.
> Thanks.
You have to take an impairment if the selling costs exceed 5. For example, let’s assume selling cost is 7, then the fair value less cost to sell is 93. The recoverable amount is then 93 (larger than value in use of 90) and this is less than the carrying value of 95. Hence, the book value exceeds the ‘fair value’ and you need to impair the asset

 

[Trekker]

Thanks for providing an additional example.
The ‘AND’ in the Recoverable Amount definition above threw off initially. I understand now that if either the ‘fair value - selling costs’ or ‘value in use’ is greater than the carrying value the asset does NOT need to be impaired - only when both of them are below the carrying value the impairment applies - and as you have correctly stated the larger value of the two is the figure to use for the impairment adjustment.

 

[R Cash]

Trekker Wrote:
——————————————————-
> Thanks for providing an additional example.
>
> The ‘AND’ in the Recoverable Amount definition
> above threw off initially. I understand now that
> if either the ‘fair value - selling costs’ or
> ‘value in use’ is greater than the carrying value
> the asset does NOT need to be impaired - only when
> both of them are below the carrying value the
> impairment applies - and as you have correctly
> stated the larger value of the two is the figure
> to use for the impairment adjustment.
You’ve nailed it. In my previous job I’ve performed quite a lot impairment tests so I’m quite sure this is correct.