Based on the IAS 36 Impairment of Assets, the calculation of impairment will be allocated to:-
FIRSTLY: specified assets which mentioned in the question; SECONDLY: will locate to goodwill (full amount); and THIRDLY: (which is the balances) will locate to remaining assets with pro-rata basis.
Example
Tinud has identified an impairment loss of $41m for one of its cash generating units. The carrying amount of the unit’s net assets was $150m, whereas the unit’s recoverable amount was only $109m. The draft values of the net assets of the unit are as follows: $m Goodwill 13 Property 20 Machinery 49 Vehicles 35 Patents 14 Net monetary assets 19 –––– 150 –––– The net selling price of the unit’s assets were insignificant except for the property, which had a market value of $35m. The net monetary assets will be realised in full.
Required: How is the impairment loss allocated to the assets within the cash generating unit?
Answer
Firstly, the impairment loss is allocated to the goodwill, reducing its carrying amount to nil. The impairment loss cannot be set against the property because its net selling price is greater than its carrying amount. Likewise, the impairment loss cannot be set against the net monetary assets (receivables, cash, etc.) because they will be realised in full. The balance of the impairment loss of $28 million ($41m – $13m) is apportioned between the remaining assets in proportion to their carrying amounts. So, for example, the impairment allocated to the machinery is $14 million ((49/(49 + 35 + 14)) × 28m).
The table below shows how the impairment will be allocated.
Draft values Impairment loss Revised value $m $m $m
Goodwill 13 (13) – Property 20 – 20 Machinery 49 (14) 35 Vehicles 35 (10) 25 Patents 14 (4) 10 Net monetary assets 19 – 19 ––––– ––––– ––––– 150 (41) 109 ––––– ––––– –––––
