Signs of failure to test for impairment. Termination of recognition (disposal) of fixed assets. Impairment Test Procedure and Documentation

Impairment of non-financial assets is addressed by IAS 36 Impairment of Assets and IFRIC 10 Interim Financial Reporting and Impairment. The requirements of the standard apply to all assets except:

• investment property carried at fair value;
• stocks;
• biological assets carried at fair value less costs to sell;
• deferred tax assets;
• assets arising from construction contracts;
• assets arising from employee benefits;
• non-current assets held for sale;
• deferred costs and financial assets (other than investments in subsidiaries, associates and joint ventures).

Impairment of financial instruments is regulated by IFRS 9, IAS 21, IAS 32, IAS 39 and the Interpretations thereto.

IAS 36 considers impairment in three directions: impairment of an individual asset, impairment of a cash generating unit (CGU), impairment of goodwill. It is necessary to distinguish between the concepts of "reserve" and "depreciation". In practice, the term “reserve” is often used to mean the estimated amount of loan losses or similar impairment losses. But unlike real reserves, which IAS 37 “Reserves, contingent liabilities and contingent assets” considers, impairment is not a reserve liability, but is an adjustment in the value of the related assets.

Note that there is no such standard for depreciation of assets among Russian PBUs. There is only one clause in PBU 14/2007 "Accounting for intangible assets". Thus, paragraph 22 of the Regulation states that intangible assets can be checked for impairment in the manner prescribed by IFRS. If we talk about the regulation of this aspect of reporting in US GAAP, then we can note many common points with IFRS in the very approach to impairment. However, a lot of the differences lie in the details. For example, US GAAP does not require discounting cash flows when determining the recoverable amount, and when determining the fair price of a transaction, it is not enough to use active market prices (there are a number of criteria), forecast periods are also different (IFRS recommends five years, US GAAP - the period of use of the asset by the company) etc.

Step 1. Determine the assets to be tested for impairment

First you need to understand whether the asset should be tested for impairment. To do this, you need to analyze the indicators that indicate a possible impairment, as well as determine the degree of sensitivity of assets to these indicators. The result of this stage will be a formalized decision to conduct testing or refuse it.

The standard indicates the presence of external (for example, negative changes in the external operating conditions or the legal environment, an increase in market interest rates, the emergence of large competitors) and internal signs (for example, the efficiency of using an asset has fallen, physical damage to the asset has occurred, etc.). In some cases, an impairment test is required even though there is no indication of impairment.

Note!

This check does not have to be done on December 31st. It can be done at any other time of the year. The main thing is that it is held at the same time every year. That is, if in 2010 a company tests goodwill for impairment on August 30, then in 2011, 2012, etc., it is on this date that the test should be carried out.

An annual mandatory impairment test is required for goodwill and for intangible assets that are not yet ready for use or that have an indefinite life beneficial use.

At this stage, it is important to determine who in the company will make the decision that any asset should be marked down. Ideally, if it is a person from the "business". It could be an employee production department, a logistician, an employee of the property department, but not an accountant, who has not even seen this asset and has no information about the future fate of this object, price dynamics for it, or the situation on the market.

However, this does not mean that the accountant should simply transfer the amount from the calculation of the responsible person to the accounting system. He needs to understand the calculation methodology, make sure that it complies with the methodology of previous years, as well as the principles laid down in IFRS. You should also explain to the responsible specialist why these calculations are needed and what kind of report you need to receive from him. You may need to consult with your colleagues or auditors if any aspects of the calculation are in doubt.

Step 2. Calculate the recoverable amount of the asset

Once you have decided that you need to test for impairment, you should calculate the recoverable amount of the asset. This is the larger of the two values:

• value in use of an asset (the present value of future cash flows Money that are expected to be received from the asset both as a result of continued use and subsequent disposal);
• fair value less costs to sell.

There is a fundamental difference between these two values. Fair value reflects the estimates and knowledge available to knowledgeable and willing buyers and sellers. Value in use, in contrast, reflects the assessments of a particular organization.

Note!

Goodwill is always tested for impairment at the level of the CGU or group of CGUs.

The standard recommends applying an individual approach to assets. That is, it is better to check assets for impairment object by object than to combine them into groups. If this is not possible (for example, too laborious and time consuming), the assets are tested for impairment as part of a cash generating unit (CGU).

A cash generating unit is the smallest group of assets that generates cash inflows from the use of the related assets and is independent of the cash inflows generated by other assets or groups of assets.

Example

In chain trade, the store with all its equipment (building, refrigeration equipment, racks, etc.) will represent the CGU. AT this case assessing, for example, a refrigeration plant, separately for impairment is not possible, since this asset generates cash flows only in combination with other assets. In addition, each store most likely has its own customer base. This is also an important "separation" factor. And even the fact that the store can use the same infrastructure as other stores, have one serving back office (that is, common marketing and other operating expenses), does not play a role in separating the store into a separate CGU. The key factor here is the ability to generate cash flow.

Separating a CGU can be one of the most difficult parts of the impairment test process. This is where professional judgment is required. Therefore, we again point out what was said at the beginning of the article - it is difficult for one accountant to cope with such a difficult analysis as identifying an autonomous, independent cash flow from CGUs. You need to seek help and advice from specialists from other departments. In this case, employees of the planning department, controllers, and operational managers can help.

The best way to determine fair value is to refer to the new IFRS 13. Although this standard does not explain the concept of fair value less costs to sell, in other aspects it is quite applicable to IAS 36. Selling costs in this aspect are recognized as additional costs that are associated with the disposal (alienation) of an asset and preparation asset for such disposal. Bank loan origination fees or income tax expense on the sale of an asset are not included as such costs because they have already been recognized as a liability.

The calculation of value in use is based on reasonable and adequate assumptions regarding cash flow forecasts that are approved by the company's management (as part of budgets and forecasts prepared in accordance with IFRS principles). The Standard recommends that such a forecast be made for a period not exceeding five years. The composition of cash flows is individual for each enterprise. In general, the calculation includes cash receipts from the further use of the asset, the necessary cash costs (including overheads), as well as the net cash flow from the subsequent disposal of the asset at the end of its useful life. Also important point is that cash flow estimates should reflect the current state of the asset. Therefore, the calculation cannot include future capital expenditures that are aimed at improving the qualities of the asset and the corresponding benefits from this. However, the capital cost of maintaining the current state of the asset must be included in the calculation.

The value of use is sometimes difficult to determine. Therefore, you can use the following trick: calculate the fair value less costs to sell, and if it turns out to be higher than the carrying amount, then there will no longer be a need to calculate the value in use. It can also be the other way around: it is difficult for a company to determine fair value less costs to sell. In this case, you can use the same logic and calculate the value of use first.

Once a company has estimated future cash flows, they must be discounted at the appropriate rate. The discount rate can be calculated using one of the following methods:

1. calculate the weighted average cost of capital (WACC), if the company has the resources for this (analysts, databases);
2. use the weighted average cost of the company's loan portfolio (any IFRS specialist can calculate this indicator) or obtain information on long-term lending rates at which new loans can be attracted as of the date of the assessment;
3. you can use the recommendation of the Federal Tariff Service and use the risk-free rate increased by 2 percent. In this case, it is possible to take the average rate on deposits in several “reliable” banks as a risk-free one.

International standards recommend using the weighted average cost of capital of an enterprise as a starting point for calculating the discount rate, but in practice it is quite difficult to calculate. In our company, WACC is not calculated, but the third method is used.

Step 3. Determine the impairment loss

An impairment loss occurs when the carrying amount of an asset or CGU exceeds its recoverable amount. In this case, the cost of the asset in the statement of financial position is reduced by the amount of the impairment loss. If this is a fixed asset or an intangible asset, then you still need to proportionally reduce the amount of accumulated depreciation. Consider the following situation.

The company's management discovered one of the signs of depreciation of equipment that produces spare parts for laptops: in reporting period Parts were sold at a price below cost. Therefore, it was decided to conduct an impairment test for this production equipment.

The balance sheet value of the equipment is 290,000 rubles. The fair value less costs to sell (estimated by the company's analysts) is RUB 120,000. The expected net cash inflow from the equipment over the next three years (remaining life) is RUB 100,000 per year. The discount rate is 10 percent. Accordingly, the net present value of cash inflow for three years will be 248,684 rubles. (100,000: (1 + 0.1) + 100,000: (1 + 0.1) 2 + 100,000: (1 + 0.1) 3). This value is the value in use of the asset. First you need to compare it with fair value and compare the largest of them (248,684 rubles) with the carrying value of the equipment. As a result, we obtain an impairment loss in the amount of RUB 41,316. (290,000 - 248,684).

Different options for exceeding the three types of asset values ​​and the outcomes of this comparison are shown in Table 1.

Table 1. determination of impairment loss of assets

Step 4. Recognize an impairment loss

An impairment loss, as well as its reversal, is recognized in profit or loss for the period. Most often, an impairment loss is recognized as a separate line within other expenses with disclosure of the relevant information in the notes to financial reporting.

Based on the conditions of the situation discussed above, the company will make the following posting:

Note!

If any of the assets in the CGU is clearly impaired, the impairment loss should be attributed to that asset first. Then the remaining amount should be attributed to goodwill. If the CGU's impairment loss exceeds the value of goodwill, then a further write-down is made pro rata to the carrying amount of the remaining assets.

It should be remembered that if an asset was previously revalued, then the impairment loss is recognized in other comprehensive income and presented in the revaluation reserve to the extent that the amount of the loss covers the previously recognized revaluation of the same asset. If the impairment loss is greater than the accumulated revaluation, the difference is recognized in profit or loss.

With the recognition of an impairment loss on CGUs, the situation is a bit more complicated. An impairment loss on a CGU must be allocated to the assets that are part of that CGU. First of all, the impairment loss is attributed to goodwill (its assessment is the most subjective), and the remainder is allocated to other assets in the CGU in proportion to their carrying value.

In this case, you cannot write off the value of the asset below:

• its fair value less costs to sell;
• zero.

This is a fairly common accounting error: when apportioning an impairment loss, it is often forgotten that there is such a limit.

Consider the following situation. The company acquired the Taxi business along with a fleet of vehicles, licenses for $230,000. An extract from the statement of financial position is shown in table 2. All assets and liabilities are stated at fair value less costs to sell (usually determined with the help of external appraisers).

Table 2. Summary Statement of Financial Position (Option 1)

Some time after the purchase, three cars are stolen. The company did not have time to reissue insurance policies for cars before the theft, and the insurance organization refused to compensate for the loss. The company should recognize an impairment loss. After the analysis and calculations, it turned out that the impairment loss would be greater than the cost of the cars. The fact is that the overall cost of using the CGU, which is the entire Taxi business, has fallen.

The company estimates that the total impairment loss is $45,000. In this case, $30,000 should be written off against property, plant and equipment and the balance against goodwill. The statement of financial position will change as shown in table 2.

Sometimes it may turn out that the company has distributed the impairment loss among the assets, taking into account the specified limit, but their value was not enough to completely “absorb” this loss.

Assume that the company estimates that the impairment loss was not $45,000 but $75,000. Changes in the statement of financial position are presented in table 3.

Table 3 Summary Statement of Financial Position (Option 2)

In this situation, the CGU cannot depreciate to US$155,000 (230,000 – US$75,000), as the fair value of the CGU's assets less costs to sell is US$160,000. In this case, it is more profitable to sell the CGU separately by assets, rather than continue to use it in its current state.

Step 5. Analyze the situation after the reporting date

The company should also evaluate the market situation after the reporting date. Most often, unexpected situations in the market cannot be foreseen when making forecasts, so the calculation data are not corrected. But such events must be taken into account when testing for impairment in the next reporting period, as well as disclosure in the notes to the financial statements.

At the next reporting date, remember to assess the situation to determine if there is any indication that previously recognized impairment losses need to be reversed.

The exception is goodwill: once it has been depreciated, it will never be possible to recover this amount. This is because IFRS prohibit the recognition of internally generated goodwill, and an increase in the amount of goodwill after the recognition of an impairment loss is most often associated with the creation of internal goodwill.

Step 6. Prepare disclosures

All work, analysis, calculations for the impairment test must be documented - not only for future generations, but also in order to disclose data such as:

• what criteria led you to think about the need for impairment;
• how you calculated the value in use of the asset (if this is the estimate chosen as the recoverable amount), including what discount rate you used, how long was the forecast period in your calculation;
• how you calculated the asset's fair value less costs to sell (if that estimate is chosen as the recoverable amount), including whether the fair value is based on an active market;
• what amount of loss you reflected and for which line of reporting;
• how much damage was recovered;
• a description of the cash generating unit – how it was defined and valued;
• a sensitivity analysis showing how a change in the assumptions used in the calculation would affect the amount of the impairment.

It is best to use the most conservative figures as possible. For example, to warn reporting users about the loss of 100 percent of the book value of an asset.

In practice, a situation may arise when the company realizes that an asset has been impaired and its carrying amount no longer reflects the real picture. However, due to certain circumstances (for example, the lack of necessary data), it is impossible to correctly calculate and reflect the amount of the loss. What to do in such cases? The following approach can be used here: it is better to count nothing than to count something that the company itself does not believe. Probably, this amount will be incomprehensible to the user, therefore, it can distort the reporting figures even more. In such a situation, it is necessary to disclose information about possible impairment losses in the notes to the financial statements in order to prepare the user of the financial statements for the fact that in the following periods, when the situation is clarified, he may see the negative financial consequences of any events.

Another slippery point is associated with asset insurance. The company knows that something happened to the asset and it falls under the insured event. But at the time of reporting, the situation had not been fully clarified and the insurance compensation had not yet been received. How to proceed in such a case? First, in no case "collapse" the amount accounts receivable under insurance with the amount of asset impairment. These are different accounting objects, and they need to be accounted for separately. And if the insurance company also disputes the amount of the loss or does not recognize on this moment If the case is insured, then the company generally does not have the right to recognize any insurance asset in its financial statements.

We also note that if your company’s staff is not strong enough to independently perform an impairment test, you should involve consultants and independent appraisers. This is especially true for testing for impairment of goodwill and CGUs.

Order of the Federal Tariff Service (FTS of Russia) dated March 3, 2011 No. 57-e “On Approval Guidelines on the calculation of the weighted average cost of equity and borrowed capital attracted for the purpose of implementing an investment project to form a technological reserve of capacities for the production of electrical energy”.

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As a rule, companies conduct an asset impairment test according to pre-regulated procedures with automatic calculations. This approach can lead to misreporting. It is important to correctly determine the value of the business and its key assets. Economic uncertainty affects the growth rate and discount rate assumptions used in the valuation, and cash flow projections are becoming less credible.

As a rule, companies that have been reporting under IFRS for more than a year already have ready-made models for conducting such tests. The most common determination of recoverable amount is based on value in use, since there is no free market for many assets.

How is an asset impairment test carried out in practice?

From year to year, pre-regulated procedures are carried out:

• analyzes significant events that could lead to a change in cash flows (company restructuring, implementation of investment programs, changes in market conditions, financing and taxation conditions, and so on);
• a new list of individual assets and cash-generating units (CGUs) is being formed (the existing one is being adjusted) for which impairment testing will be carried out. The most significant CGUs to which goodwill is allocated are taken into account (these may be individual business units, subsidiaries or segments). When compiling the list, both the materiality factor and signs of impairment (decrease in the value of net assets, non-execution of the budget, incurring losses) are taken into account;
• the discount rate is determined (most companies use the weighted average cost of capital, WACC - English weighted average cost of capital);
• data are collected on the value of assets, taking into account goodwill (fixed assets, intangible assets, construction in progress) as of the date of testing, as well as expected in the medium term (no more than 5 years) cash inflows and outflows and projected changes in the value of assets. For these purposes, budgets and forecasts drawn up as part of the company's planning process are used.

The working models for impairment testing are set up to automatically calculate the value in use of assets and CGUs, compare them with the carrying amount, and also determine the sensitivity to changes in the assumptions included in the calculation - interest rate, profitability, growth rates. The use of such models for the purposes of reporting under IFRS has both its advantages and disadvantages. The advantages include methodological consistency, ensuring comparability of data, clarity of calculations, the ability to involve ordinary accounting or finance specialists in filling out the model. In addition, the development of models is mainly carried out by experienced financial consultants in cooperation with auditors, which is a kind of quality assurance.

The disadvantage of this toolkit is the lack of flexibility and the inability to take into account dynamic changes in the economic situation. There is an additional risk of distortion of the calculations, which arises due to the human factor - it is necessary to carefully control how carefully the indicators are collected to determine the WACC, whether the data entered into the models correspond to the original figures, and so on.

The actual problem is the quality of building cash flow forecasts in the planning and budgeting process, which is confirmed by studies of the European Commission on Securities and Financial Markets (English ESMA - European Securities and Markets Authority).

International Trends in Asset Impairment Testing

An analysis of several hundred financial statements by ESMA revealed the poor quality of disclosures about impairment of assets. The experts noted that disclosure requirements, which require increased management involvement, are less enforced than disclosure requirements, which require little effort, indicating the use of formulaic phrases and patterns that do not reflect reality.

Moreover, as a result of unfavorable economic conditions, the cash flows generated by the assets are likely to decrease and, accordingly, the likelihood of impairment losses increases. However, no increase in impairment losses was found.

In May 2013, the IASB published amendments to IAS 36 Impairment of Assets that relate to the disclosure of the recoverable amount of non-financial assets. Disclosure requirements have been added to paragraphs 130, subparagraph “f” (paragraphs (i)-(iii) added), and 134, subparagraph “e” (paragraphs (iiA) and (iiB) added). These changes are partly related to amendments to IFRS 13 Fair Value Measurement, and partly are a response to requests from the business community to improve the reliability and transparency of information regarding asset impairment.

The amendments relate to disclosure of information on the recoverable amount of impaired assets based on fair value less costs to sell.

Additionally disclosed:

1. The level of the fair value hierarchy in accordance with IFRS 13;
2. For assets classified in the second and third levels of the fair value hierarchy:
   • a description of the valuation techniques used to determine fair value less costs of disposal. If there was a change in the methods, this fact and its reasons are indicated;
   • each key assumption on which management determines fair value. The key assumptions are those to which the recoverable amount is most sensitive (change in sales volume, margin, time to improve an asset or introduce a new product);
3. Discount rates applied in the current and prior periods if fair value less costs of disposal is measured using discounted cash flow projections.

estimates used to determine the recoverable amount of significant CGUs containing goodwill or intangible assets with an indefinite life, it is now also necessary to further disclose the level of the fair value hierarchy in accordance with IFRS 13 and describe changes in valuation techniques that have occurred, with reasons.

Obviously, these amendments require additional efforts in the preparation of financial statements and the preparation of relevant disclosures.

How to improve the quality of reporting in terms of asset impairment?

The main condition is the active involvement of senior management, since the assessment for impairment is not an accounting procedure. First of all, this is a business valuation, which has a direct impact on the future development of the company. Management should arrange for both process support and evaluation of impairment testing results. At the same time, it is worth ensuring the neutrality of the assessment, since not every manager is ready to recognize impairment losses.

Better predictive information needs to be used. The assumptions used in making forecasts should reflect trends in the industry and the economy as a whole. The data obtained from previous forecasts should not be extrapolated mechanically, they should be critically analyzed.

To obtain realistic forecasts, key assumptions should be reviewed regularly:

• how cash flows will change if the depth of the economic downturn is greater or less than previously thought;
• what will happen to revenues if the economic recovery starts earlier or later than expected;
• whether the actual rate of cost reduction is in line with the budget;
• how much the change in exchange rates or prices for raw materials will affect up or down.

As a result of the revision of key assumptions, management may come to various conclusions - from the need to change the forecasting model to the restructuring or reorganization of assets.

According to research, users of financial statements are interested in information about the opinion and intentions of management regarding the future development of the business, including the events that led to the impairment. These disclosures are not mandatory, but IFRS calls for going beyond the requirements of the standards if it enhances the usefulness of reporting. Also, when preparing financial statements, not only sufficient disclosure of information should be ensured, but also the absence of contradictions with other data of both the statements themselves and other published documents, such as analytical reviews, press releases, messages for expert analysts and meetings of shareholders.

document status: materials for the meeting OK Communication

Description of the problem

The regulation “Accounting for intangible assets” provides for an impairment test for intangible assets in the manner prescribed by International Financial Reporting Standards (clause 22 PBU 14/2007).

IAS 36 Impairment of Assets prescribes how assets should be accounted for so that their carrying amount does not exceed their recoverable amount. cost - cost future economic benefits (intended use or sale) that the company can receive from this asset in the future.

Thus, based on the principle of prudence, the value of assets in the balance sheet should not be overstated.

If this is the case, the asset is considered to be impaired and the standard requires the recognition of an impairment loss and also determines when the impairment loss should be reversed.

General rules for checking the impairment of intangible assets

Any situation that results in a decrease in future cash flows from an asset is an indication that the asset may be impaired.

Signs indicating the impairment of intangible assets are divided into internal and external.

External signs:

Significant decrease in the market value of the asset;

Significant changes in the economic, market and legal conditions of the company;

Significant changes in technological processes of production;

Market interest rates or other market rates of return on investments have increased and this increase will have a material adverse effect on the discount rate used in calculating the asset's value in use and recoverable amount.

Internal signs:

Moral and physical deterioration;

The company intends to liquidate the asset;

The company plans to restructure;

There have been changes in internal reporting indicators that prove that the current or future results of using the asset are worse than originally expected.

This list of indicators of impairment is not exhaustive. The Company may identify other indications that an asset may be impaired, which would also require an impairment test.

Checking assets for impairment can be represented as a scheme:

Basic rules for the impairment test:

For cash-generating intangibles that fall within the scope of IAS 36, an entity must perform a mandatory impairment test at the end of each financial year. If a company prepares interim financial statements - for example, quarterly - a review for signs of impairment should be carried out at each reporting date.

If there are indications of impairment, an estimate of the recoverable amount is required. If there is no indication of impairment, there is no need to calculate the recoverable amount, except for intangible assets with an indefinite useful life.

Intangible assets with an indefinite useful life are those for which it is difficult to establish the exact length of the period during which the company expects to receive economic benefits from these assets. Intangible assets with an indefinite useful life are not amortized but are tested for impairment.

Solution, examples

The Company quarterly identifies indicators of impairment of intangible assets for the presence or absence of external and internal signs.

A Checklist for intangible assets is generated and sent to those responsible for use in order to confirm the presence or absence of impairment indicators as of the reporting date.

An example of a Checklist for identifying indicators of impairment of intangible assets:

Prepared by : Signature Date

Checked: Signature Date

Approved : Signature Date

If there are indicators of impairment, the company tests intangible assets for impairment.

An example of an approach to conducting an impairment test and determining the recoverable amount of intangible assets:

Fair value less costs to sell - is the amount that could be received from the sale of an asset in a transaction between independent, knowledgeable, willing parties.
In the absence of a sale and purchase agreement, fair value is determined as the price in an active market - the purchase price of a similar asset in the market, the price of the last transaction to acquire a similar asset.
In the absence of a sale and purchase agreement and an active market, fair value is determined based on the best information available to the entity . For example - assessment of intangible assets by expert appraisers.
Selling costs - These are incremental costs that are directly attributable to the sale of an asset, excluding finance costs and income tax, and costs already included in liabilities.

Use value - the amount of discounted future cash flows from the asset (cash generating unit) under consideration.
The calculation of the value in use of an asset (CGU) involves the formation of inflows and outflows of cash from the use of an asset (CGU), as well as their discounting at the appropriate discount rate.

Discounting cash flows from the use of an asset is related to the unequal value of money over time. The decrease in the value of cash flows over time suggests that the amount of money today is more expensive than a similar amount of money after a certain time, since during this time the specified amount of money, being invested, will bring additional income to their owner. Thus, discounting is a calculation of the present value of money amounts relating to future periods.

Asset value in use (CGU) option:

Discount rate- the pre-tax rate, which reflects the current market value money and the risks inherent in that asset (that CGU). In particular, it can be market lending rates or the company's weighted average cost of capital (WACC).

Discount index used in the calculation of the value in use of an asset (CGU) is determined by the formula:

1/ (1+ discount rate)^ n

where the power of n is the number of the period (year) under consideration.

Cash inflow - revenue from the sale of products(works, services) produced using the asset (CGU). At the same time, revenue is determined as the product of sales volumes in physical terms by the selling price;
- proceeds from the sale of assets at the end of their periods of use;

Cash outflow , directly related to inflows - variable costs for the production of products (works, services), costs for scheduled and preventive repairs.

forecast period - for which cash flows are determined. The period is five years. During this period, cash flows may be shaped by rising growth rates.

The basis for constructing forecast cash flows are company budgets.

Impairment loss - if the carrying amount of an asset is greater than its recoverable amount, the asset should be reduced to its recoverable amount and recognized at (Carrying Amount - Recoverable Amount).

Based on the calculation of the recoverable amount, the impairment loss of the asset is recognized in full.

Accounting for impairment loss:

In asset accounting according to Russian and international rules. The main purpose of this IFRS standard is to prevent overstatement of the carrying value of non-current (long-term) assets.

The carrying amount of non-current assets is the historical cost adjusted for the amount of accounting depreciation, which is an estimate and only approximates the change in the value of assets over time. Meanwhile, investors, who are the main users of financial statements, are not interested in abstract figures of value, but in the economic benefits that assets can bring in the future. IAS 36 Impairment of Assets provides assurance that the economic benefits from reported assets will not be overstated.

The text of IFRS standards in Russian is published not only on the official website of the Ministry of Finance (at the bottom of the article), but also on many Internet resources. However, reading the original text of the standards is rather tedious, as they are written in professional document language. I will try in this article to state the essence of the standard in an understandable language. For professional judgments in the process of preparing real reporting, it is necessary, of course, to refer to the original text of both the standard itself, translated into Russian, and all additions and explanations that are usually not translated into Russian.

Dipifr applicants should pay attention to IAS 36 both in the December 2015 session and in the future. This standard has not yet been tested by current examiner Paul Robins on the Dipifre exam. But the same story until June 2015 was with the standard IFRS 41 " Agriculture”, and in June 2015 the question on IFRS 41 appeared immediately at 12 points.

The economic meaning of checking assets for impairment

Under IAS 36 Impairment of Assets, an asset cannot be carried in the statement of financial position at larger amount than its recoverable amount. If the carrying amount of an asset cannot be fully recovered through continued use or sale, then an impairment of that asset (loss in profit or loss) must be recognized.

Asset impairment indicators

IFRS IAS 36 requires an asset impairment test (more on that below). Conducting such a test is a rather time-consuming procedure, so the standard does not require it to be carried out at the end of each reporting period. An asset impairment test should be carried out when there are indicators of impairment. At each reporting date, the company must determine whether there are such indicators (IFRS 36, P.12). Impairment indicators are divided into external and internal depending on where the information source is located

External sources of information

• during the period, the market value of an asset declined significantly more than expected over time or normal use.
• significant changes in the technical, market, economic or legal environment in which the entity operates or in the market for which the asset is intended.
• market interest rates have increased during the period (hence the discount rate used in calculating value in use has increased)
• the carrying value of the company's net assets exceeds its market capitalization (in other words, the value of the company in the financial statements has become greater than the value of the company on the stock exchange)

Internal sources of information

• signs of obsolescence or physical damage to the asset.
• Significant changes have occurred during the period or will occur in the near future: decommissioning of the asset, plans to cease or restructure the activities to which the asset relates, plans to dispose of the asset before a previously planned date, and reclassification of the asset's life from indefinite to definite.
• it appears from internal reporting that the economic performance of the asset is worse or will be worse than expected.

Whether or not there is any indication of impairment, the following should be reviewed annually for impairment:

1. intangible asset with an indefinite life,
2. an intangible asset that is not yet available for use (R&D),
3. goodwill acquired in a business combination.

Impairment test for IFRS assets

An impairment test means determining the recoverable amount of an asset and comparing it with cost.

The recoverable amount of an asset is the higher of:

• Fair value of the asset less costs to sell
• The value in use of an asset, which is the present value of the future cash flows that will be received from the use of the asset.

a) If the carrying amount > recoverable, then the asset is impaired. The amount of the excess is the impairment loss, which is charged either to income statement or to the revaluation reserve.

b) If the book value< возмещаемой, то обесценения нет, и, следовательно, корректировок в отчетности тоже нет.

If the concept of fair value is more or less clear, then value in use is a new term that appears in IFRS with the introduction of the Impairment of Assets standard.

Value in use of an asset

What is the recoverable amount? If you own an asset, then you can either use it or sell it. Deciding what to do with an asset depends on how many benefits (cash) you get in one way or another. In most cases, the asset's value in use exceeds its fair value to sell, so it is more profitable not to sell the asset, but to consume the economic benefits it generates. But if you do not know how to use the asset profitably, and the price of its sale is more attractive for you, then it would be better to sell it to someone who will be able to get more use out of the asset.

Value in use is the present value of future cash flows from an asset.

To determine the value in use of an asset, you need to predict all the cash flows that you will receive from the asset in the future and to date. The phrase "all future cash flows" means that both cash inflows and cash outflows associated with both future use and disposal of the asset should be taken into account. For example, if you buy a second apartment to rent out (and you have an apartment to live in), then the value of using this second apartment for you will be equal to the present value of the future rent minus utilities costs during the entire period of use, plus the present value net cash flow from the sale of this apartment in the future.

Recoverable Amount Estimation - Must Read Standard

IAS 36 pays great attention to the calculation of both recoverable amount in general and value in use in particular, since recoverable amount is the cornerstone of this standard.

To determine the fair value of an asset less costs to sell, you need to refer to the standard. Please note that paragraphs 25-27 of IFRS 36 were removed with the release of IFRS 13, but in the Russian translation, which is published on the website of the Ministry of Finance, they still remain, since the translation was made before changes were made to IFRS regarding fair value.

Determining the value in use of an asset is a significant part of IAS 36. How to estimate future cash flows from an asset is described in 20 paragraphs of the standard and 4 more paragraphs relate to the choice of discount rate. In addition, there is Appendix A which explains how to discount expected cash flows to calculate value in use. This application is translated into Russian. Unfortunately, this is where the translation into Russian ends. The original IAS 36 also contains Appendix C, Basis for Conclusions and Illustrative Examples, and all three of these untranslated parts are as long as the part of the standard that was translated into Russian.

If you happen to be estimating the recoverable amount of an asset for an IFRS impairment test, then you will have to carefully read everything that is written about this in IAS 36. In this case, you will be able to appreciate how laborious it is, and why not everyone is tested for impairment reporting period, but only if there is an indication that the asset may be impaired.

The translation of IFRS 36 is posted on the website of the Ministry of Finance. It can be found at the link:

http://www.minfin.ru/ru/perfomance/accounting/mej_standart_fo/docs/

An illustrative task for calculating the impairment of an asset

Alpha has reviewed its assets for impairment. There are reasons to believe that the cost of some production equipment has irreversibly declined. Products made using this equipment were sold below cost. The carrying amount of the equipment at the end of the reporting period is $290,000 and the fair value less costs to sell is estimated at $120,000. The expected net cash flow from the use of this equipment over the next 3 years is $100,000 per year. For present value calculations, use interest rate 10%.

Is there a depreciation of the equipment in this case? How should it be reflectedin Alpha's financial statements?

Solution

1) Since there are indications that the equipment is depreciating (sales of products below cost = the economic performance of the asset is unsatisfactory), an impairment test should be carried out.

2) Impairment test - comparing the carrying amount of production equipment with its recoverable amount.

2) The recoverable amount is the higher of the asset's fair value less costs to sell and its value in use.

4) Fair value less costs to sell is 120,000.

5) Value in use equals the present value of future cash flows from the asset - $248,685. The discount factor (factor) for years 1, 2 and 3 can be taken from , these figures will be given on the Dipfir exam.

6) 248.685 > 120.000. Therefore, the recoverable amount is $248,685.

7) Alpha must therefore write down the asset to its value in use and recognize a loss of 41,315 (= 290,000 – 248,685) in profit and loss.

Dr Impairment loss Cr Fixed assets (equipment) – 41,315

• OFP: fixed assets — 248,685
• OSD: impairment loss — 41,315

IFRS 36 is one of the most voluminous IFRS standards and its consideration is impossible within the framework of one article - it would turn out to be too long. In this article, I have not touched on such issues: where impairment losses are recorded, what is a CGU, the impairment of goodwill, the reversal of an impairment loss and disclosure. I plan to do this in future posts.

In the course of business activities of sports institutions, some items of non-financial assets (fixed assets, non-produced assets) may show signs of impairment. It is necessary to identify such signs in order to make a timely management decision on the further use of the said property or its disposal and to reflect these facts in accounting and reporting. For these purposes, the FSBU “Impairment of Assets” is used. More about this in the consultation.

Impairment of assets occurs in a situation where the value of property in the reporting period (in previous reporting periods) decreased faster than expected in the process of its use in accordance with its intended purpose. For example, property is physically and morally obsolete or damaged in a natural disaster or other emergency.

The FSBU “Impairment of Assets” requires public sector institutions to:

record an impairment loss on an asset if it exceeds its fair value (the amount that could be realized by selling or restoring it);

reverse an impairment loss on an asset if there is any indication that the loss recognized in prior periods may no longer exist or may have decreased;

disclose this information in the accounting (financial) statements.

Note: FSBU “Impairment of Assets” does not apply to inventories and financial assets, unless otherwise provided by this standard.

According to clause 6 of the Federal Financial Budgetary Institution “Impairment of Assets”, signs of asset impairment are identified as part of an inventory of assets and liabilities prior to the preparation of annual accounting (financial) statements by analyzing the presence of any signs indicating a possible asset impairment (hereinafter referred to as the impairment test).

By virtue of the named federal standard, the test for asset impairment can be conditionally divided into several stages:

identifying signs of asset impairment (decrease in previously recognized impairment);

determination of the fair value of the asset;

determination of the amount of impairment loss (decrease in previously recognized loss);

reflection of test results in accounting and reporting.

Impairment Test Procedure and Documentation

At present, recommendations for conducting an asset impairment test are not contained in the regulations governing public sector institutions. At the same time, Letter No. 02-07-05/67175 of the Ministry of Finance of the Russian Federation dated September 19, 2018 provided information that recommendations on the application of the FSBU “Impairment of Assets” will be sent additionally as part of general recommendations preparation for the annual accounting (financial) statements.

As noted above, the asset impairment test is carried out during the annual inventory of property, that is, until December 31 of the current year. We recommend that you go through the main stages of the asset impairment test (identification of signs, determination of fair value and loss) during the inventory period, without waiting for explanations from the Ministry of Finance, since this process is laborious and can take a long time. Then (based on the recommendations of the financial department) the results of the impairment test should be reflected.

Identifying signs of asset impairment

In an impairment test, assets are divided as follows.

Cash generating assets (hereinafter referred to as GDP assets), are assets the purpose of owning which is to obtain economic benefits (income) in the form of cash or cash equivalents (hereinafter referred to as positive cash flow, cash flows), regardless of the fact of receiving such income.

Non-Cash Generating Assets (hereinafter referred to as NCDP assets), are assets from which useful potential is expected to flow and the purpose of holding which is not to receive cash flows.

Asset group - a set of assets that are similar in essence or functions performed in the activities of an accounting entity, information about which is disclosed in the accounting (financial) statements in one article (generalized).

Cash generating unit (GDP unit) is the smallest identifiable group of assets that is eligible to generate positive cash flows. A group of assets is identified as a unit of GDP if it is possible to isolate the cash flow resulting from the use of this group of assets from the total cash flow received as part of the activities of the accounting entity.

A CGU unit combines both assets, from the independent use of which useful potential is expected to be received and the purpose of holding which is not to receive cash flows, and assets, if used independently, it is possible to receive a positive cash flow (hereinafter - an asset in the CGU that generates cash flows).

A group of assets used to perform work, provide services, including for internal consumption by an institution, can be classified as a unit of the GPV - for example, a football training ground, which includes locker rooms and other facilities for athletes and support staff, a playing field, a drainage system , underground heating system, irrigation system, strengthening elements, gates, benches for teams, seats for spectators, lighting equipment, fencing, etc. According to this classification, indicators of impairment are identified:

a) individually for each NGDP asset;

b) individually for each GDP asset;

c) for each individual unit of GDP.

Indications that an asset may be impaired can be external or internal. For example, intrinsic features include obsolescence and/or physical damage to an asset that reduces its useful potential. To outward signs– absence or significant decrease in the need for works, services provided by the asset.

If any sign of impairment of an asset, named in paragraphs 7, 8 of the Federal Financial Budgetary Institution “Impairment of Assets” (or in the local act of the institution), during the inventory, the authorized commission makes a decision on the need to determine the fair value of the asset, taking into account the materiality of the impact on it of the identified signs of impairment .

Note: if, based on the results of the analysis of the identified signs of asset impairment, the institution makes a decision to record the asset on off-balance accounts, further testing for impairment of such an asset (determination of fair value) is not carried out (clause 14 of the FSBU “Impairment of Assets”).

The form of the protocol of the commission for identifying signs of impairment may contain:

1) the name of the protocol (for example, a protocol for identifying signs of asset impairment), number, date of compilation;

2) the preamble (the commission, approved by order dated ______ No. ______, consisting of ___________________, when conducting an inventory of assets in order to ensure the reliability of the data of the annual accounting (financial) statements, established the presence of signs of asset impairment as of ________________ (date, inventory list number);

4) signs indicating the depreciation of the asset (with justification);

5) decision of the commission.

Determination of fair value

The fair value of an asset is determined by the commission entrusted with such powers (if necessary, with the involvement of third-party specialists), using the market price method or the amortized replacement cost method (clause 11 of the FSB “Impairment of Assets”). The procedure for applying these methods is provided for in paragraph 54 of the FSBU "Conceptual Foundations".

The institution uses the method that provides the most reliable estimate of the asset's fair value. The chosen method for determining the fair value of an asset is established in the act of the commission on determining the fair value of the asset.

1) name of the act (for example, an act on determining the fair value), number, date of compilation;

2) preamble (the commission, approved by the order of ______ No. ______, consisting of ___________________ in relation to the object for which signs of impairment were revealed (minutes of ___ No. ______), determined its fair value based on the following data ...);

3) a brief description of the object (name of the object, inventory number, balance sheet and residual value, GDS asset / NGV asset / GDS unit);

4) method for determining fair value. Depending on the chosen method, when determining the fair value of an object, the commission uses:

data on prices for similar material assets obtained in writing from manufacturing organizations;

information on the price level available from the state statistics authorities, as well as in the means mass media and special literature;

expert opinions (including experts involved in work in the commission on the receipt and disposal of assets) on the cost of individual (similar) objects of non-financial assets);

5) data on the current (average) market price(with supporting documents attached to the act);

6) decision of the commission.

Note: at the same time, when making a decision on determining the fair value, the commission assesses the need to adjust the remaining useful life of the asset (clause 13 of the FSB “Impairment of Assets”).

Recognition of an impairment loss on an asset

By virtue of clause 15 of the FSBU “Impairment of Assets”, a decision to recognize an impairment loss from an asset that is state (municipal) property is made in the manner similar to the decision to write off such property established in accordance with the legislation of the Russian Federation.

Note: in relation to immovable and especially valuable movable property acquired by budgetary or autonomous institutions at the expense of the founder, the decision of the commission on the recognition of an impairment loss is subject to agreement with the owner of the property. In a state-owned institution, such decisions must be agreed with the owner in relation to all property.

The procedure for recognizing an asset impairment loss in accounting is as follows:

1. An impairment loss for an asset is recognized if the asset's residual value at the annual reporting date exceeds its fair value less costs of disposal of such asset, calculated in accordance with the decision taken by the institution to determine the fair value of the asset.

2. The residual value of an asset at the annual reporting date is reduced to its fair value, determined in accordance with the decision of the commission, less the costs of disposal of such an asset, but not more than the residual value of the asset at the annual reporting date. The calculation takes into account the stipulated features of the recognition of impairment losses for the CGU asset and the CGU asset, a CGU unit (given below).

3. The loss is reflected in accounting at a time as part of the expenses of the reporting period. In this case, the amount of previously accrued depreciation of the asset is not adjusted.

Peculiarities of recognition of losses from impairment of the GDP asset and the NGDP asset are as follows (clause 16 of the FSB “Impairment of Assets”).

If the estimated amount of an asset's impairment loss is greater than its residual value at the annual reporting date, then the residual value of such an asset is reduced to zero (with the recognition of the corresponding amount in the expenses of the reporting period). An obligation for the amount of such an excess is recognized in accounting in cases established by regulatory legal acts regulating the maintenance accounting and preparation of accounting (financial) statements.

After an asset impairment loss is recognized, the depreciation rate for the asset is adjusted in connection with the decision made by the accounting entity to adjust the remaining useful life of the asset in such a way as to evenly distribute the revised residual value of the asset over the remaining useful life of the asset, taking into account its adjustment .

Peculiarities of recognizing an impairment loss for a unit of GDP are as follows (clause 17 of the FSB “Impairment of Assets”).

Impairment loss of a CGU unit is allocated in proportion to the residual value of the assets included in the CGU unit. In this case, the residual value of the asset that is part of the CGU unit is reduced to its fair value less costs of disposal, if any, or to zero otherwise.

For an asset that is part of a CFL unit, an asset impairment loss is recognized if its residual value at the annual reporting date is greater than the fair value of the CFL unit less costs of disposal or residual value, taking into account the results of the earlier allocation of the asset's impairment loss.

If the value of a CGU unit has not decreased, then no impairment loss is recognized for assets in CGUs that generate cash flows. This rule applies even if the fair value less costs of disposal of an asset in a CGU that generates cash flows is less than the carrying amount at the annual reporting date of that asset.

Impairment testing of CGU assets included in a CGU unit is carried out prior to the impairment test of the entire CGU unit. After an impairment test of the CGU assets included in the CGU unit, their residual value is included in the residual value of the CGU unit that is subject to the impairment test.

Impairment loss of the GPE unit is recognized by allocating the amount of the impairment loss of the GPE unit, calculated based on the results of the impairment test of the GPE unit, in proportion to the residual value of all assets of the GPE included in the GPE units. For CGU assets that are part of a CGU unit, no impairment loss is recognized for the CGU unit.

Documentation of the impairment loss calculation.

The decision of the commission, which is entrusted with the authority to determine the fair value, may be formalized by an act. The form of such an act may contain:

1) name of the document (for example, calculation of an asset impairment loss), number, date of compilation;

2) preamble (the commission, approved by order dated ______ No. ______, consisting of ___________________ in relation to the object for which signs of impairment were identified (minutes dated ___ No. ______), calculated the loss from its impairment based on the following data ...);

3) a brief description of the object (name of the object, inventory number, balance sheet and residual value, GDS asset / NGV asset / GDS unit);

4) calculated data and calculation (given in the table below);

5) decision of the commission;

6) a note on agreement with the owner of the property (if necessary).

* Data on disposal costs are documented (attached to the calculation). If necessary, explanations (tables) are provided, taking into account the specifics of loss recognition, provided for in paragraphs 16, 17 of the FSB “Impairment of Assets” in relation to NGDP assets, GDP assets, and a GPA unit.

Reflection of loss in accounting

Accrual of loss from depreciation of an item of fixed assets is reflected in accounting separately from the cost of an item of fixed assets by analogy with the amount of depreciation for this item of fixed assets.

In this case, the asset impairment loss is recognized as an expense of the reporting period at a time. The amount of previously accrued depreciation of the asset is not adjusted.

To reflect in accounting the amounts of accumulated losses, it is provided account 0 114 00 000“Impairment of non-financial assets” (in the context of analytical accounts).

In the table, we present the correspondence of accounts for the accrual and write-off of losses from asset impairment, as well as in the case of the transfer of property for which such a loss was previously accrued.

Example.

The budgetary sports institution has sports equipment on its balance sheet, the initial cost of which is 2,200,000 rubles, the accrued depreciation is 800,000 rubles. This equipment was acquired through income-generating activities to provide paid services. During the inventory, the commission identified signs of its depreciation, namely, a decrease in value due to damage to some structural elements as a result of aggressive impact environment(aftermath of a hurricane). The commission determined the average market value of such equipment, taking into account the current state, in the amount of 1,000,000 rubles. The sale of equipment is not expected.

The Commission has determined that this sports equipment belongs to the assets of the SDO.

The fair value of the equipment is RUB 1,000,000 as no selling costs are expected.

Based on the calculations, the residual value of the equipment exceeds its fair value ((2,200,000 - 800,000) rubles > 1,000,000 rubles). Consequently, the institution recognizes an impairment loss in the amount of RUB 400,000. ((2,200,000 - 800,000) - 1,000,000).

The following entry is reflected in the accounting records:

Reflection of impairment losses in the financial statements

In the accounting (financial) statements as a result of recognition (recovery) of losses from depreciation of an asset, the following information is subject to disclosure for each group of assets:

a) the amount of the asset impairment loss recognized as an expense during the period and the line items in which those asset impairment losses are included;

b) the amount of reversal of asset impairment losses recognized in income during the period and the line items for which those asset impairment losses were reversed.

For the amount of impairment loss of an asset recognized or reversed during the reporting period, the institution reports (clause 32 of the FSB “Impairment of Assets”):

the events and circumstances that led to the recognition or reversal of an impairment loss on an asset;

the amount of an impairment loss recognized or reversed for an asset;

the group to which the asset belongs, if the provision of such information is provided for by regulatory legal acts regulating accounting and preparation of accounting (financial) statements;

the methods used to determine fair value in the impairment test.

The specified information is transmitted together with other data disclosed for each group of assets in accordance with regulatory legal acts.

In conclusion, we summarize the above. Identification of signs of depreciation of an asset is carried out as part of an inventory of assets and liabilities before the preparation of annual accounting (financial) statements by conducting an impairment test.

For these purposes, it is advisable for the institution to approve (in a separate document or as part of an accounting policy):

commissions that are entrusted with the authority to identify signs of asset impairment, determine the fair value, and calculate the impairment loss;

the procedure for conducting an impairment test during the annual inventory and in other cases;

forms of documents on the basis of which the results of the impairment test are issued.

Recommendations on the application of the FSBU “Impairment of Assets” will be sent by the financial department additionally as part of the general recommendations for preparing for the annual accounting (financial) statements (Letter of the Ministry of Finance of the Russian Federation dated September 19, 2018 No. 02-07-05 / 67175).