Cost-based measurement for assets - IFRS

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International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation.

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

Cost
-
based
measurement for
assets

Joint World Bank and IFRS Foundation ‘train
the trainers’ workshop hosted by the ECCB,
30 April to 4 May 2012

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

What is historical cost
?

© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

© 2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

3

Historical cost ‘concept’

3


Assets are recorded at the amount of cash or
cash equivalents paid
or

the fair value of the
consideration given to acquire them at the time of
their acquisition.


Liabilities are recorded at the amount of proceeds
received in exchange for the obligation, or in some
circumstances (for example, income taxes), at the
amounts of cash or cash equivalents expected to
be paid to satisfy the liability in the normal course
of business.

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

© 2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

4

Cost
-
based IFRS measures

4


Few things measured at historical cost


unimpaired land (IAS 16 + IAS 40 cost model)


unimpaired indefinite life intangibles (IAS 38)


unimpaired inventories (IAS 2)


Cost
-
based measures are more common


unimpaired depreciated historic cost (IAS 16)


unimpaired amortised historical cost (IAS 38)


amortised cost (IFRS 9)

Impairment changes to a fair value or other
measure

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

When are
cost
-
based
measures used for assets?

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

6

Asset

6

Assets

Intangible

Financial

Inv

Property

PP&E

Inventory

Etc

Defined

Benefit

Deferred
Tax

Classification, recognition and
measurement

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

© 2010 IFRS Foundation. 30 Cannon Street | London EC4M 6XH | UK. www.iasb.org

7

ASSET

TYPE

MEASUREMENT AT
INITIAL RECOGNITION

COST MODEL

BASIS OF
IMPAIRMENT

TEST

IAS 2
Inventory

Cost

of purchase and/or conversion
costs

and
costs

to get the item to
the location

and condition for sale

Cost
unless impaired

Lower of
cost
(initial recognition)
and net

realisable
value

IAS 16
Property, Plant
and Equipment

Purchase
costs

+ construction
costs

+
costs

to bring to the location and
condition necessary to be capable
of operating in the manner intended
by management.

Accounting policy
choice:
cost

less
accumulated
depreciation

and
impairment, if any

Compare carrying
amount to
recoverable
amount.


Recoverable
amount is greater
of value in use and
fair value
less
disposal costs
(IAS 36)

IAS 38
Intangibles

Assets

Purchase
costs

+ development
costs

+
costs

to bring to the location
and condition necessary to be
capable of operating as intended by
management

Accounting policy
choice:
cost

less
accumulated
amortisation

(unless
indefinite life asset)
and amortisation, if
any

IAS 40
Investment
Property

Cost

including transaction costs

Accounting policy
choice:
cost

less
accumulated
depreciation

(unless
land) and impairment
(if any)

IFRS 9
Financial
Instruments

Fair value

For particular business
models
amortised cost

IAS 39 specifies
impairment rules

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

IAS 2

Inventories

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Inventories
are
initially measured
at cost.


The cost of inventory includes costs of purchase
and production or conversion
.


cost
does not include abnormal wastage,
administrative overheads that are not
production
costs
and selling costs.


Cost is assigned to each item of
unique inventory
using specific identification. FIFO
or weighted
average
cost are used for ordinarily
interchangeable inventory items. LIFO is prohibited.


Inventory can be a
qualifying asset

in terms of IAS
23
Borrowing Costs

9

Measurement

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

10

Example

cost of purchase


A buys a good priced at CU500 per unit from
Z. Z awards A
a

20% discount on orders of
+100 units and 10% discount when A buys
+999 units in 1 year. The

discounts apply to
all units acquired in a year.


A buys as follows: 800 units on 1/1/20X1 and
200 units

on 24/12/20X1.


On 31/12/20X1, 150 units were unsold (
ie

inventories of A).


©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

11

Example

cost of purchase


A measures the cost of the inventories in
20X1 at CU350,000 [
ie

1,000 units
×

(CU500
list price less 30%(CU500) volume discount)],
because all units purchased in the year get
the full 30% discount.


A recognises:


expense (cost of sales) of CU297,500 [
ie

850 units sold
×

(CU500 list price less
30%(CU500) volume discount)] in profit or
loss in 20X1


asset (inventories) of CU52,500 [
ie

150
units unsold
×

(CU500 less 30%(CU500)
discount)] at 31/12/20X1.

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

12

Example

conversion costs


A makes concrete blocks in reusable moulds.
Blocks dry in a drying room for 2 weeks.
Dried blocks & raw mat’s stored in separate
rooms.


A front
-
end loader (man 1) adds materials to
the mixing machine operated by man 2.
Casual labourers remove blocks from moulds.
Man 3 supervises the factory. Man 4 does
admin, finance and sales.


A operates from rented premises (fixed
payments).




©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

13

Example

conversion costs


Costs of conversion include


direct costs: casual labour.


production overheads: factory rent (incl.
raw mat’s area & drying room but excl.
finished goods room); staff cost of man 1,2
& 3; depreciation of equipment (front end
loader, mixing machine and moulds).

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Inventories
are reduced to
NRV
when this is lower
than cost.


NRV is estimated selling price less estimated
costs
to complete
and
sell (entity specific
value).


The
write
-
down is
made on an
item by
item basis.
The write
-
down of groups
of items
may occur when
the grouped
items have similar uses, are produced
or marketed in the same area and
cannot
be
practicably
evaluated separately from other items in
that product line
.


Write
-
downs can be reversed.

14

Write
-
down to net realisable value
(NRV
)

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

15

Examples

NRV write
-
down


Ex 1:

At reporting date


CA (cost) of raw materials = 100


replacement cost = 80


est. selling price of finished good = 200


est. costs to convert the raw material into
finished good = 60


est. costs to sell the finished good = 30



Ex 2:

Same as Ex 1 except est. selling price



= 180

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

16

Example

reverse impairment


At 31/12/20X1


because of a decline in economic
circumstances recognised an impairment
loss on an item of inventory of 30 (
ie

cost =
100 & SP
-
CTC&S = 70)


At 31/12/20X2




because of an improvement in economic
circumstance the SP
-
CTC&S of that item is
120

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Inventory may qualify as a qualifying asset in
accordance with IAS 23

borrowing costs
incurred on qualifying assets may be
considered for
capitalisation
.


Unlike IAS 23, Section 25
Borrowing Costs
of
the
IFRS for SMEs
prohibits the
capitalisation

of
borrowing costs

all borrowing costs are
expensed.

17

Comparison to
IFRS for
SMEs

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Calculating the cost of a manufacturer’s
inventory involves a number of judgements,
including:


normal wastage


allocating overheads (including plant
depreciation)


allocating joint costs to joint products.

18

Judgements and
estimates

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Impairment


identifying impaired inventories


estimating net
realisable

value.


Net
realisable

value is an entity
-
specific
measure and therefore
judgement

is
required in order to determine the amounts
expected to be realised upon sale of the
inventory.

19

Judgements
and
estimates
continued

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

IAS 16

Property, Plant and Equipment

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


PPE is initially recognised at cost


Cost includes:


purchase costs


construction costs


costs to bring to the location and condition
necessary to be capable of operating in the manner
intended by management


Subsequent
costs qualify for
capitalisation

if
they meet the asset recognition
criteria


21

Measurement

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


After initial recognition entity chooses to
measure PPE either:


at
cost less accumulated
depreciation and
accumulated impairment (cost model); or


at fair value less subsequent

accumulated
depreciation and accumulated impairment
(revaluation model
).


22

Measurement
continued

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Depreciation:


PPE
with a finite useful life is depreciated.


land usually has an indefinite useful life and consequently
land is not usually depreciated.


Depreciation is the systematic allocation of the
depreciable amount of an asset over its estimated useful
life


The depreciable amount of an asset is its cost (or
substitute) less its residual value


Different methods may be used but should best reflect
the pattern of benefits associated with the asset


23

Measurement
continued

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

24

Example

depreciation


On 1/1/20X1 buy machine for CU100,000.
Initial estimates & judgements:


useful life = 10
yrs

& residual value = 0


straight
-
line depreciation is appropriate



At 31/12/20X5 year
-
end reassess:


useful life = 24
yrs

(from the date of
acq
)
and residual value = CU20,000


straight
-
line depreciation is appropriate

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Full
IFRSs require an annual review of residual
value, useful life and depreciation
method of
property, plant and equipment.
Section 17
Property, Plant and Equipment
of the
IFRS for
SMEs
requires a review
only
if there is
an
indication
that there has been a significant
change since the last annual reporting date.

25

Comparison to the
IFRS for
SMEs

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Cost of some items includes significant
estimates


costs of dismantling, removal, restoration


costs of self constructed
PPE


Depreciation requires:


identifying significant components to be
depreciated separately


estimating useful life and residual value


identifying the depreciation method that reflects
most closely the consumption of the service
potential of the item of
PPE

26

Judgements and estimates

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Determining the classes of property, plant and
equipment for presentation purposes.


27

Judgements and estimates
continued

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

IAS 38

Intangible Assets

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Intangible
assets are measured initially at cost.


Thereafter, intangible assets are usually measured
using the cost model

cost less accumulated
amortisation

(unless indefinite life) and impairment,
if any.


An intangible asset with a finite useful life is
amortised and tested for impairment similarly to
PPE.


An intangible asset with an indefinite useful life is
not amortised, but is tested
annually
for impairment

or where evidence of impairment exists.


29

Measurement

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

30

Examples

estimating useful life


Ex 1:

A acquires a customer list. Expects to
benefit from list for 1

3 years.



Ex 2:

B acquires a 5
-
year airline route
authority (ARA) that is renewable every 5
years at no cost


renewal is routine if specified rules and
regulations are complied with


B is compliant and expects to fly the route
indefinitely


an analysis of demand and cash flows
supports those assumptions

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


The main differences between IAS 38 and Section 18
Intangible Assets other than Goodwill
of the
IFRS for
SMEs

include that, in accordance with Section 18:


a
ll intangible assets are considered to have definite useful
lives and, therefore, must all be amortised


a
mortisation

estimates need only be reviewed where there is
an indication of a significant change



31

Comparison with the
IFRS for
SMEs

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Control of an asset arises when the entity has
the power to obtain future economic benefits
from the underlying resource and to restrict the
access of other to those benefits. Intangible
items of value to an entity may not be controlled
by it,
eg

the assembled workforce and customer
relationships.


Research phase expenditures cannot be
capitalised

as assets. Development phase
expenditures are
capitalised

when the specified
criteria for asset recognition are satisfied.

32

Judgements and
estimates

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Amorisation

requires:


identifying a finite useful life intangible asset


estimating useful life


(residual value is usually assumed to be zero
unless there is an active market)


identifying the
amortisation

method that reflects
most closely the consumption of the service
potential of the item of the intangible asset.


Impairment testing requires many estimates
(see IAS 36).

33

Judgements and estimates
continued

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

IAS 40

Investment Property

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


An investment property is measured initially at
cost.


The cost of a property interest held under a
lease is measured in accordance with IAS 17
Leases

at the lower of the fair value of the
property interest and the present value of the
minimum lease payments.

35

Initial
measurement

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IFRS Foundation |
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For subsequent measurement an entity must
adopt either the fair value model or the cost
model for all investment properties.


All entities must estimate the fair value of
investment property, either for measurement (if
the entity uses the fair value model) or for
disclosure (if it uses the cost model).


Measure fair value in accordance with IFRS 13
Fair Value Measurement
.

36

Subsequent
measurement

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Investment
property is measured at cost less
accumulated depreciation and any accumulated
impairment losses (
ie

using the cost model in
IAS 16
Property, Plant and Equipment
).


Similar impairment consideration and principles
must be applied.



37

Cost
model

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


The main
differences between IAS 40 and Section
16
Investment Property
of the
IFRS for SMEs
include:


the
IFRS for SMEs
does not have an accounting policy
choice for measurement. The
accounting
for investment
property is driven by circumstances. If an entity knows or
can measure the
fair value
of an item of investment
property without undue cost or effort on an ongoing
basis, it
must use the fair value through profit or loss
model for that investment property.
It must
use the cost
-
depreciation
-
impairment model


unlike
IAS 40, the
IFRS for SMEs
does not require
disclosure of
the fair values of investment property
measured on a cost basis.


38

Comparison to the
IFRS for
SMEs

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Sometimes it is difficult to identify investment
property. In such cases an
entity develops criteria
so that it can exercise that judgement consistently


eg
, owner of a hotel transfers some responsibilities
to third parties under a management contract (PPE
or investment property?)


In some cases measuring fair value (see IFRS 13)


When cost model used measuring depreciation
(see IAS 16 for estimating residual value,
depreciation method
and useful life)

39

Judgements and
estimates

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Sometimes it is difficult to identify investment
property. In such cases an
entity develops criteria
so that it can exercise that judgement consistently


eg
, owner of a hotel transfers some responsibilities
to third parties under a management contract (PPE
or investment property?)


In some cases measuring fair value (see IFRS 13)


When cost model used measuring depreciation
(see IAS 16 for estimating residual value,
depreciation method
and useful life)

40

Judgements and
estimates

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

IAS 23

Borrowing Costs

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


IAS 23 prescribes the accounting treatment for
borrowing costs.


Borrowing costs are interest and other costs
incurred in connection with borrowing.

42

Introduction

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


An entity shall
capitalise

borrowing costs that
are directly attributable to the acquisition,
construction or production of an asset that
takes a substantial time to get ready for its
intended use or sale (a qualifying asset).


Other borrowing costs are recognised as an
expense in the period in which they are
incurred.

43

Recognition

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IFRS Foundation |
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Borrowing costs directly attributable to the
acquisition, construction or production of a
qualifying asset are those that would have been
avoided if the expenditure on the asset had not
been made.


They may be borrowing costs incurred on funds
borrowed specifically for obtaining a qualifying
asset or a calculated amount based on a
weighted average borrowing rate applied to
expenditure on the asset.

44

Recognition
continued

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IFRS Foundation |
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Capitalisation

of borrowing costs takes place
during the development of the asset, and ends
when the asset is ready for its intended use or
sale.


When the asset is completed in parts,
capitalisation

of borrowing costs ceases when
each part is ready for intended use or sale.

45

Recognition
continued

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Unlike IAS 23, Section 25
Borrowing Costs
of
the
IFRS for SMEs
prohibits the
capitalisation

of
borrowing costs

all borrowing costs are
expensed.

46

Comparison to
IFRS for
SMEs

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Determining the amount of borrowing costs that
are directly attributable to the acquisition of a
qualifying assets requires judgement. For
example:


it might be difficult to identify a direct
relationship between particular borrowings and
a qualifying asset and to determine the
borrowings that could otherwise have been
avoided, particularly when financing is co
-
ordinated

centrally.


47

Judgements and
estimates

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

IAS 36

Impairment of Assets

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


IAS 36 applies to all assets other than those not
within the scope of the Standard (IAS 36.2)


Assets not within the scope include:


Inventories


Deferred tax assets


Financial assets within the scope of IFRS 9


Investment property measured at fair value



49

Which assets?

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


An entity must, at the end of every reporting
period, assess whether there is any indication
that an asset (or cash
-
generating unit) is
impaired


Irrespective of whether an indication of
impairment exists, annual impairment tests
must be conducted for:


Intangible assets with an indefinite useful life;


Intangible assets not yet available for use; and


Goodwill acquired in a business combination.


50

When to test for impairment?

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Impairment (IAS 36):


Comparison of the asset’s (or
cash
-
generating unit’s
) carrying
amount to its recoverable amount


Recoverable amount is the higher of fair value less costs to
sell and value in use.


Fair value less costs to sell is the arm’s length sale price
between knowledgeable, willing parties less the costs of
disposal.


The value in use of an asset is the expected future cash
flows the asset in its current condition will produce,
discounted to present value using an appropriate pre
-
tax
discount rate.



51

Measurement

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Impairment (per IAS 36):


An impairment loss is recognised immediately in the
statement of comprehensive income.


When an impairment loss is recognised, the
carrying amount of the asset (or cash
-
generating
unit) is reduced.


In a cash
-
generating unit, goodwill is reduced first,
then other assets are reduced pro rata.


The depreciation
charge
is adjusted in future
periods to allocate the asset’s revised carrying
amount over its remaining useful life.



52

Measurement

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

53

Example

CGU impairment


At 31/12/20X1 CA of a CGU’s assets = 210 (
ie

150 taxis, 50 taxi licence & 10 goodwill)


Impairment indicated & RA = 170.


Fair value of taxis = 140.



Impairment loss = 40 (
ie

210 CA less 170 RA)


1
st

allocate 10 loss to goodwill


2
nd

allocate remaining 30 loss,
ie

22.5 to taxis &
7.5 to licence (pro rata on CA)


3
rd

reallocate 12.5 loss from taxis to licence

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Reversing
an impairment
loss (per IAS 36)


Consistent with the ‘principle’ of not
recognising

an asset for internally generated goodwill, an
impairment loss for goodwill is never reversed.


For other assets, when the circumstances that
caused the impairment loss are resolved, the
impairment loss is reversed.


However, the reversal is limited to the amount
that the asset would have been had there been
no impairment loss in prior years.

54

Measurement
continued

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

55

Example

impairment reversal


Facts from CGU impairment example. At
31/12/20X2 CA of CGU = 120 (
ie

100 taxis &
20 licence)


Impairment reversal indicated & RA estimated
= 150


Potential impairment reversal = 30 (
ie

150 RA
less 120 CA) but limited to 20 (as follows)


1
st

allocate to assets pro rata on CAs,
ie

5 to
licence & 25 to taxis


2
nd

limit
amt

allocated to taxis to 7 (
if no
impairment in 20X1, CA at 20X2 = 107
)

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56

Example

impairment reversal




3
rd

reallocate 18 reversal from taxis to licence


Total reversal provisionally allocated to licence
= 23 (
ie

5 + 18)


4
th

limit
amt

allocated to licences to 13 (
if no
impairment in 20X1,

CA at 20X2 = 33
)


5
th

as there are no other assets to reallocate
the unallocated 10 (
ie

23 less 13) reversal to,
limit the total impairment reversal to 20
(
ie

7 for taxis and 13 for licence)

©
IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


IAS 36
and Section
27
Impairment of Assets

of the
IFRS for SMEs
share
similar principles, but the
IFRS for SMEs
is drafted in
simplified
language.

57

Comparison to the
IFRS for
SMEs

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IFRS Foundation

|

30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Identifying some indicators of impairment
requires judgement (
eg

decline in an asset’s
market value; adverse changes in the
technological, market, economic or legal
environment; increase in market interest rates,
among others).


Identifying the lowest level of independent cash
inflows for some groups of assets (
ie

cash
-
generating unit) requires judgement.


Allocating goodwill to cash
-
generating units
requires judgement.

58

Judgements and
estimates

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Measuring the value in use (an entity
-
specific
measure) of an asset or group of assets
involves


estimating future cash flows that the entity
expects to derive from the assets (its use and
subsequent disposal) taking account of
expectations about possible variations in the
amount or timing of those cash flows


adjusting for risks specific to the asset that
market participants would reflect in pricing the
asset


identifying appropriate discount rates.

59

Judgements and estimates
continued

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Measuring the fair value less costs to sell of an
asset or group of assets involves judgement


see IFRS 13 for judgements and estimates in
measuring fair value.


estimating costs to sell can involve significant
estimates.

60

Judgements and estimates
continued

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

International Financial Reporting Standards

The views expressed in this presentation are those of the
presenter,
not
necessarily those of the IASB or IFRS Foundation

IFRS 9

Financial Instruments

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Financial assets are initially measured at their
fair value (which may be cost) adjusted for
transaction costs if the subsequent
measurement of the financial asset is not at fair
value


Amortised cost is the amount initially
recognised for the financial asset less principal
repayments and adjusted for cumulative
amortisation using the effective interest rate
method less any impairment losses (see
paragraph 9 of IAS 39)

62

Financial assets at ‘cost’ measurement

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org


Impairment


if there is evidence of impairment, the impairment
loss is the difference between the financial asset’s
carrying amount and the present value of the
estimated future cash flows discounted at the
financial asset’s original effective interest rate.


the reduction of the asset’s carrying amount is
reflected directly to the asset or through an
allowance account.


the impairment loss is recognised in profit or loss.

63

Financial assets at ‘cost’
measurement
continued

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IFRS Foundation |
30 Cannon Street | London EC4M 6XH | UK. www.ifrs.org

© IFRS Foundation | 30 Cannon Street | London EC4M 6XH | UK | www.ifrs.org

64



The requirements are set out in
International Financial
Reporting Standards (IFRSs)
, as issued by the IASB at
1 January 2012 with an effective date after 1 January
2012 but not the IFRSs they will replace.


The IFRS Foundation, the authors, the presenters and
the publishers do not accept responsibility for loss
caused to any person who acts or refrains from acting
in reliance on the material in this PowerPoint
presentation, whether such loss is caused by
negligence or otherwise.

64