Contact us   Feedback   Annual Subscription   New User   Login      
Tax Management India .com
TMI - Tax Management India. Com
Extracts
Home List
← Previous Next →

Impairment of Assets

Ind AS - 036 - B. Indian Accounting Standards (Ind AS) - Companies Law - Ind AS - 036 - Indian Accounting Standard (Ind AS) 36 (This Indian Accounting Standard includes paragraphs set in bold type and plain type, which have equal authority. Paragraphs in bold type indicate the main principles.) Objective 1 The objective of this Standard is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount. An asset is carried at more .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) assets arising from construction contracts (see Ind AS 11, Construction Contracts and Ind AS 18, Revenue ) ] (c) deferred tax assets (see Ind AS 12, Income Taxes); (d) assets arising from employee benefits (see Ind AS 19, Employee Benefits); (e) financial assets that are within the scope of Ind AS 109, Financial Instruments; (f) [Refer Appendix 1]; (g) biological assets related to agricultural activity within the scope of Ind AS 41 Agriculture that are measured at fair value less costs to sell .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, or assets classified as held for sale (or included in a disposal group that is classified as held for sale) because Indian Accounting Standards applicable to these assets contain requirements for recognising and measuring these assets. 4 This Standard applies to financial assets classified as: (a) subsidiaries, as defined in Ind AS 110, Consolidated Financial Statements; (b) associates, as defined in Ind AS 28, Investments in Associates and Joint Ventures; and (c) joint ventures, as defined in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

impairment losses) in accordance with other Ind ASs, such as the revaluation model in Ind AS 16, Property, Plant and Equipment and Ind AS 38, Intangible Assets. The only difference between an asset's fair value and its fair value less costs of disposal is the direct incremental costs attributable to the disposal of the asset. (a) If the disposal costs are negligible, the recoverable amount of the revalued asset is necessarily close to, or greater than, its revalued amount. In this case, aft .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lies this Standard to determine whether the asset may be impaired. Definitions 6 The following terms are used in this Standard with the meanings specified: Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon. A cash-generating unit is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of ass .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

s the systematic allocation of the depreciable amount of an asset over its useful life.1 Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. (See Ind AS 113, Fair Value Measurement.) An impairment loss is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount. The recoverable amount of an asset or a cash-generating unit i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

l be determined. These requirements use the term an asset but apply equally to an individual asset or a cash-generating unit. The remainder of this Standard is structured as follows: (a) paragraphs 18-57 set out the requirements for measuring recoverable amount. These requirements also use the term an asset but apply equally to an individual asset and a cash-generating unit. (b) paragraphs 58-108 set out the requirements for recognising and measuring impairment losses. Recognition and measuremen .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

quirements for an individual asset are set out in paragraphs 117-121, for a cash-generating unit in paragraphs 122 and 123, and for goodwill in paragraphs 124 and 125. (d) paragraphs 126-133 specify the information to be disclosed about impairment losses and reversals of impairment losses for assets and cashgenerating units. Paragraphs 134-137 specify additional disclosure requirements for cash-generating units to which goodwill or intangible assets with indefinite useful lives have been allocat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset. 10 Irrespective of whether there is any indication of impairment, an entity shall also: (a) test an intangible asset with an indefinite useful life or an intangible asset not yet available for use for impairment annually by comparing its carrying amount with its recoverable amount. This .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

hs 80-99. 11 The ability of an intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty before the asset is available for use than after it is available for use. Therefore, this Standard requires an entity to test for impairment, at least annually, the carrying amount of an intangible asset that is not yet available for use. 12 In assessing whether there is any indication that an asset may be impaired, an entity sha .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the market to which an asset is dedicated. (c) market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset s value in use and decrease the asset s recoverable amount materially. (d) the carrying amount of the net assets of the entity is more than its market capitalisation. Internal sources of information (e) evidence is available of obsolescence or physical damage of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n indefinite. 2 (g) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected. Dividend from a subsidiary, joint venture or associate (h) for an investment in a subsidiary, joint venture or associate, the investor recognises a dividend from the investment and evidence is available that: (i) the carrying amount of the investment in the separate financial statements exceeds the carrying amounts in the consolidated fin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h paragraphs 80-99. 14 Evidence from internal reporting that indicates that an asset may be impaired includes the existence of: (a) cash flows for acquiring the asset, or subsequent cash needs for operating or maintaining it, that are significantly higher than those originally budgeted; (b) actual net cash flows or operating profit or loss flowing from the asset that are significantly worse than those budgeted; (c) a significant decline in budgeted net cash flows or operating profit, or a signif .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

whether the recoverable amount of an asset needs to be estimated. For example, if previous calculations show that an asset s recoverable amount is significantly greater than its carrying amount, the entity need not re-estimate the asset s recoverable amount if no events have occurred that would eliminate that difference. Similarly, previous analysis may show that an asset s recoverable amount is not sensitive to one (or more) of the indications listed in paragraph 12. 16 As an illustration of p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

maining useful life. (b) if the discount rate used in calculating the asset s value in use is likely to be affected by the increase in these market rates but previous sensitivity analysis of recoverable amount shows that: (i) it is unlikely that there will be a material decrease in recoverable amount because future cash flows are also likely to increase (eg in some cases, an entity may be able to demonstrate that it adjusts its revenues to compensate for any increase in market rates); or (ii) th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gher of an asset s or cash generating unit s fair value less costs of disposal and its value in use. Paragraphs 19-57 set out the requirements for measuring recoverable amount. These requirements use the term an asset but apply equally to an individual asset or a cash-generating unit. 19 It is not always necessary to determine both an asset s fair value less costs of disposal and its value in use. If either of these amounts exceeds the asset s carrying amount, the asset is not impaired and it is .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ns. In this case, the entity may use the asset s value in use as its recoverable amount. 21 If there is no reason to believe that an asset s value in use materially exceeds its fair value less costs of disposal, the asset s fair value less costs of disposal may be used as its recoverable amount. This will often be the case for an asset that is held for disposal. This is because the value in use of an asset held for disposal will consist mainly of the net disposal proceeds, as the future cash flo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

; or (b) the asset s value in use can be estimated to be close to its fair value less costs of disposal and fair value less costs of disposal can be measured. 23 In some cases, estimates, averages and computational short cuts may provide reasonable approximations of the detailed computations illustrated in this Standard for determining fair value less costs of disposal or value in use. Measuring the recoverable amount of an intangible asset with an indefinite useful life 24 Paragraph 10 requires .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e cash inflows from continuing use that are largely independent of those from other assets or groups of assets and is therefore tested for impairment as part of the cash-generating unit to which it belongs, the assets and liabilities making up that unit have not changed significantly since the most recent recoverable amount calculation; (b) the most recent recoverable amount calculation resulted in an amount that exceeded the asset s carrying amount by a substantial margin; and (c) based on an a .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and similar transaction taxes, costs of removing the asset, and direct incremental costs to bring an asset into condition for its sale. However, termination benefits (as defined in Ind AS 19) and costs associated with reducing or reorganising a business following the disposal of an asset are not direct incremental costs to dispose of the asset. 29 Sometimes, the disposal of an asset would require the buyer to assume a liability and only a single fair value less costs of disposal is available fo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ainty inherent in the asset; and (e) other factors, such as illiquidity, that market participants would reflect in pricing the future cash flows the entity expects to derive from the asset. 31 Estimating the value in use of an asset involves the following steps: (a) estimating the future cash inflows and outflows to be derived from continuing use of the asset and from its ultimate disposal; and (b) applying the appropriate discount rate to those future cash flows. 32 The elements identified in p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

value in use. Basis for estimates of future cash flows 33 In measuring value in use an entity shall: base cash flow projections on reasonable and supportable assumptions that represent management s best estimate of the range of economic conditions that will exist over the remaining useful life of the asset. Greater weight shall be given to external evidence. base cash flow projections on the most recent financial budgets/forecasts approved by management, but shall exclude any estimated future c .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

can be justified. This growth rate shall not exceed the long-term average growth rate for the products, industries, or country or countries in which the entity operates, or for the market in which the asset is used, unless a higher rate can be justified. 34 Management assesses the reasonableness of the assumptions on which its current cash flow projections are based by examining the causes of differences between past cash flow projections and actual cash flows. Management shall ensure that the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

recasts for a maximum of five years. Management may use cash flow projections based on financial budgets/forecasts over a period longer than five years if it is confident that these projections are reliable and it can demonstrate its ability, based on past experience, to forecast cash flows accurately over that longer period. 36 Cash flow projections until the end of an asset s useful life are estimated by extrapolating the cash flow projections based on the financial budgets/forecasts using a g .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

y or countries in which the entity operates, or for the market in which the asset is used. 38 In using information from financial budgets/forecasts, an entity considers whether the information reflects reasonable and supportable assumptions and represents management s best estimate of the set of economic conditions that will exist over the remaining useful life of the asset. Composition of estimates of future cash flows 39 Estimates of future cash flows shall include: projections of cash inflows .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assumptions about price increases attributable to general inflation. Therefore, if the discount rate includes the effect of price increases attributable to general inflation, future cash flows are estimated in nominal terms. If the discount rate excludes the effect of price increases attributable to general inflation, future cash flows are estimated in real terms (but include future specific price increases or decreases). 41 Projections of cash outflows include those for the day-to-day servicin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

nstruction or for a development project that is not yet completed. 43 To avoid double-counting, estimates of future cash flows do not include: (a) cash inflows from assets that generate cash inflows that are largely independent of the cash inflows from the asset under review (for example, financial assets such as receivables); and (b) cash outflows that relate to obligations that have been recognised as liabilities (for example, payables, pensions or provisions). 44 Future cash flows shall be es .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

benefits that are expected to arise from a future restructuring to which an entity is not yet committed; or (b) future cash outflows that will improve or enhance the asset s performance or the related cash inflows that are expected to arise from such outflows. 46 A restructuring is a programme that is planned and controlled by management and materially changes either the scope of the business undertaken by an entity or the manner in which the business is conducted. Ind AS 37, Provisions, Contin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

orecasts approved by management); and (b) its estimates of future cash outflows for the restructuring are included in a restructuring provision in accordance with Ind AS 37. 48 Until an entity incurs cash outflows that improve or enhance the asset s performance, estimates of future cash flows do not include the estimated future cash inflows that are expected to arise from the increase in economic benefits associated with the cash outflow. 49 Estimates of future cash flows include future cash out .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

h different estimated useful lives, the replacement of components with shorter lives is considered to be part of the day-to-day servicing of the asset when estimating the future cash flows generated by the asset. 50 Estimates of future cash flows shall not include: (a) cash inflows or outflows from financing activities; or (b) income tax receipts or payments. 51 Estimated future cash flows reflect assumptions that are consistent with the way the discount rate is determined. Otherwise, the effect .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

entity expects to obtain from the disposal of the asset in an arm s length transaction between knowledgeable, willing parties, after deducting the estimated costs of disposal. 53 The estimate of net cash flows to be received (or paid) for the disposal of an asset at the end of its useful life is determined in a similar way to an asset s fair value less costs of disposal, except that, in estimating those net cash flows: (a) an entity uses prices prevailing at the date of the estimate for similar .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

flows on disposal. 53A Fair value differs from value in use. Fair value reflects the assumptions market participants would use when pricing the asset. In contrast, value in use reflects the effects of factors that may be specific to the entity and not applicable to entities in general. For example, fair value does not reflect any of the following factors to the extent that they would not be generally available to market participants: (a) additional value derived from the grouping of assets (suc .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

riate for that currency. An entity translates the present value using the spot exchange rate at the date of the value in use calculation. Discount rate 55 The discount rate (rates) shall be a pre-tax rate (rates) that reflect(s) current market assessments of: (a) the time value of money; and (b) the risks specific to the asset for which the future cash flow estimates have not been adjusted. 56 A rate that reflects current market assessments of the time value of money and the risks specific to th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

er review. However, the discount rate(s) used to measure an asset s value in use shall not reflect risks for which the future cash flow estimates have been adjusted. Otherwise, the effect of some assumptions will be double counted. 57 When an asset-specific rate is not directly available from the market, an entity uses surrogates to estimate the discount rate. Appendix A provides additional guidance on estimating the discount rate in such circumstances. Recognising and measuring an impairment lo .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

gnised immediately in profit or loss, unless the asset is carried at revalued amount in accordance with another Standard (for example, in accordance with the revaluation model in Ind AS 16). Any impairment loss of a revalued asset shall be treated as a revaluation decrease in accordance with that other Standard. 61 An impairment loss on a non-revalued asset is recognised in profit or loss. However, an impairment loss on a revalued asset is recognised in other comprehensive income to the extent t .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

asset shall be adjusted in future periods to allocate the asset s revised carrying amount, less its residual value (if any), on a systematic basis over its remaining useful life. 64 If an impairment loss is recognised, any related deferred tax assets or liabilities are determined in accordance with Ind AS 12 by comparing the revised carrying amount of the asset with its tax base. Cash-generating units and goodwill 65 Paragraphs 66-108 and Appendix C set out the requirements for identifying the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ing unit to which the asset belongs (the asset s cash-generating unit). 67 The recoverable amount of an individual asset cannot be determined if: (a) the asset s value in use cannot be estimated to be close to its fair value less costs of disposal (for example, when the future cash flows from continuing use of the asset cannot be estimated to be negligible); and (b) the asset does not generate cash inflows that are largely independent of those from other assets. In such cases, value in use and, .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

rom scrap value. Therefore, the entity estimates the recoverable amount of the cash generating unit to which the private railway belongs, ie the mine as a whole. 68 As defined in paragraph 6, an asset s cash-generating unit is the smallest group of assets that includes the asset and generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. Identification of an asset s cash-generating unit involves judgement. If recoverable amount cannot be det .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t level of identifiable cash inflows that are largely independent of the cash inflows from other assets or groups of assets is the cash inflows generated by the five routes together. The cash-generating unit for each route is the bus company as a whole 69 Cash inflows are inflows of cash and cash equivalents received from parties external to the entity. In identifying whether cash inflows from an asset (or group of assets) are largely independent of the cash inflows from other assets (or groups .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

used internally. If the cash inflows generated by any asset or cash-generating unit are affected by internal transfer pricing, an entity shall use management s best estimate of future price(s) that could be achieved in arm s length transactions in estimating: (a) the future cash inflows used to determine the asset s or cash-generating unit s value in use; and (b) the future cash outflows used to determine the value in use of any other assets or cash-generating units that are affected by the inte .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts. In using information based on financial budgets/forecasts that relates to such a cashgenerating unit, or to any other asset or cash-generating unit affected by internal transfer pricing, an entity adjusts this information if internal transfer prices do not reflect management s best estimate of future prices that could be achieved in arm s length transactions. 72 Cash-generating units shall be identified consistently from period to period for the same asset or types of assets, unless a change .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the cash generating unit s fair value less costs of disposal and its value in use. For the purpose of determining the recoverable amount of a cash-generating unit, any reference in paragraphs 19-57 to an asset is read as a reference to a cash generating unit . 75 The carrying amount of a cash-generating unit shall be determined on a basis consistent with the way the recoverable amount of the cash-generating unit is determined. 76 The carrying amount of a cash-generating unit: (a) includes the ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lue in use of a cash generating unit are determined excluding cash flows that relate to assets that are not part of the cash-generating unit and liabilities that have been recognised (see paragraphs 28 and 43). 77 When assets are grouped for recoverability assessments, it is important to include in the cash-generating unit all assets that generate or are used to generate the relevant stream of cash inflows. Otherwise, the cash-generating unit may appear to be fully recoverable when in fact an im .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

coverable amount of a cash-generating unit. This may occur if the disposal of a cash-generating unit would require the buyer to assume the liability. In this case, the fair value less costs of disposal (or the estimated cash flow from ultimate disposal) of the cash-generating unit is the price to sell the assets of the cash generating unit and the liability together, less the costs of disposal. To perform a meaningful comparison between the carrying amount of the cash-generating unit and its rec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

n as the overburden was removed. The amount provided was recognised as part of the cost of the mine and is being depreciated over the mine s useful life. The carrying amount of the provision for restoration costs is ₹ 500, which is equal to the present value of the restoration costs. The entity is testing the mine for impairment. The cash-generating unit for the mine is the mine as a whole. The entity has received various offers to buy the mine at a price of around ₹ 800. This price .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ed after consideration of the restoration costs and is estimated to be ₹ 700 (Rs. 1,200 less ₹ 500). The carrying amount of the cash-generating unit is ₹ 500, which is the carrying amount of the mine (Rs. 1,000) less the carrying amount of the provision for restoration costs (Rs. 500). Therefore, the recoverable amount of the cash-generating unit exceeds its carrying amount. 79 For practical reasons, the recoverable amount of a cash-generating unit is sometimes determined after .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

cquired in a business combination shall, from the acquisition date, be allocated to each of the acquirer s cash-generating units, or groups of cash-generating units, that is expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units or groups of units. Each unit or group of units to which the goodwill is so allocated shall: (a) represent the lowest level within the entity at which the goodwill is moni .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ributes to the cash flows of multiple cash-generating units. Goodwill sometimes cannot be allocated on a non-arbitrary basis to individual cashgenerating units, but only to groups of cash-generating units. As a result, the lowest level within the entity at which the goodwill is monitored for internal management purposes sometimes comprises a number of cash-generating units to which the goodwill relates, but to which it cannot be allocated. References in paragraphs 83-99 and Appendix C to a cash- .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

allocated for the purpose of impairment testing may not coincide with the level at which goodwill is allocated in accordance with Ind AS 21, The Effects of Changes in Foreign Exchange Rates, for the purpose of measuring foreign currency gains and losses. For example, if an entity is required by Ind AS 21 to allocate goodwill to relatively low levels for the purpose of measuring foreign currency gains and losses, it is not required to test the goodwill for impairment at that same level unless it .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

mined only provisionally by the end of the period in which the combination is effected, the acquirer: (a) accounts for the combination using those provisional values; and (b) recognises any adjustments to those provisional values as a result of completing the initial accounting within the measurement period, which will not exceed twelve months from the acquisition date. In such circumstances, it might also not be possible to complete the initial allocation of the goodwill recognised in the combi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ues of the operation disposed of and the portion of the cash-generating unit retained, unless the entity can demonstrate that some other method better reflects the goodwill associated with the operation disposed of. Example An entity sells for ₹ 100 an operation that was part of a cash-generating unit to which goodwill has been allocated. The goodwill allocated to the unit cannot be identified or associated with an asset group at a level lower than that unit, except arbitrarily. The recove .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d in the carrying amount of the operation that is sold. 87 If an entity reorganises its reporting structure in a way that changes the composition of one or more cash-generating units to which goodwill has been allocated, the goodwill shall be reallocated to the units affected. This reallocation shall be performed using a relative value approach similar to that used when an entity disposes of an operation within a cash-generating unit, unless the entity can demonstrate that some other method bett .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

d to units B, C and D on the basis of the relative values of the three portions of A before those portions are integrated with B, C and D. Testing cash-generating units with goodwill for impairment 88 When, as described in paragraph 81, goodwill relates to a cash-generating unit but has not been allocated to that unit, the unit shall be tested for impairment, whenever there is an indication that the unit may be impaired, by comparing the unit s carrying amount, excluding any goodwill, with its r .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ested for impairment annually, and whenever there is an indication that the unit may be impaired, by comparing the carrying amount of the unit, including the goodwill, with the recoverable amount of the unit. If the recoverable amount of the unit exceeds the carrying amount of the unit, the unit and the goodwill allocated to that unit shall be regarded as not impaired. If the carrying amount of the unit exceeds the recoverable amount of the unit, the entity shall recognise the impairment loss in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

current annual period, that unit shall be tested for impairment before the end of the current annual period. 97 If the assets constituting the cash-generating unit to which goodwill has been allocated are tested for impairment at the same time as the unit containing the goodwill, they shall be tested for impairment before the unit containing the goodwill. Similarly, if the cash-generating units constituting a group of cash-generating units to which goodwill has been allocated are tested for impa .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

sting for impairment the cash-generating unit containing the goodwill. Similarly, there may be an indication of an impairment of a cash-generating unit within a group of units containing the goodwill. In such circumstances, the entity tests the cash generating unit for impairment first, and recognises any impairment loss for that unit, before testing for impairment the group of units to which the goodwill is allocated. 99 The most recent detailed calculation made in a preceding period of the rec .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ysis of events that have occurred and circumstances that have changed since the most recent recoverable amount calculation, the likelihood that a current recoverable amount determination would be less than the current carrying amount of the unit is remote. Corporate assets 100 Corporate assets include group or divisional assets such as the building of a headquarters or a division of the entity, EDP equipment or a research centre. The structure of an entity determines whether an asset meets this .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ispose of the asset. As a consequence, if there is an indication that a corporate asset may be impaired, recoverable amount is determined for the cashgenerating unit or group of cash-generating units to which the corporate asset belongs, and is compared with the carrying amount of this cash-generating unit or group of cash-generating units. Any impairment loss is recognised in accordance with paragraph 104. 102 In testing a cash-generating unit for impairment, an entity shall identify all the co .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

stent basis to that unit, the entity shall: (i) compare the carrying amount of the unit, excluding the corporate asset, with its recoverable amount and recognise any impairment loss in accordance with paragraph 104; (ii) identify the smallest group of cash-generating units that includes the cash-generating unit under review and to which a portion of the carrying amount of the corporate asset can be allocated on a reasonable and consistent basis; and (iii) compare the carrying amount of that grou .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

and only if, the recoverable amount of the unit (group of units) is less than the carrying amount of the unit (group of units). The impairment loss shall be allocated to reduce the carrying amount of the assets of the unit (group of units) in the following order: (a) first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit (group of units); and (b) then, to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

en allocated to the asset shall be allocated pro rata to the other assets of the unit (group of units). 106 If it is not practicable to estimate the recoverable amount of each individual asset of a cash-generating unit, this Standard requires an arbitrary allocation of an impairment loss between the assets of that unit, other than goodwill, because all assets of a cash-generating unit work together. 107 If the recoverable amount of an individual asset cannot be determined (see paragraph 67): (a) .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

lthough not as well as before it was damaged. The machine s fair value less costs of disposal is less than its carrying amount. The machine does not generate independent cash inflows. The smallest identifiable group of assets that includes the machine and generates cash inflows that are largely independent of the cash inflows from other assets is the production line to which the machine belongs. The recoverable amount of the production line shows that the production line taken as a whole is not .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

heless, the entity may need to reassess the depreciation period or the depreciation method for the machine. Perhaps a shorter depreciation period or a faster depreciation method is required to reflect the expected remaining useful life of the machine or the pattern in which economic benefits are expected to be consumed by the entity. Assumption 2: budgets/forecasts approved by management reflect a commitment of management to replace the machine and sell it in the near future. Cash flows from con .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

After the requirements in paragraphs 104 and 105 have been applied, a liability shall be recognised for any remaining amount of an impairment loss for a cash-generating unit if, and only if, that is required by another Indian Accounting Standard. Reversing an impairment loss 109 Paragraphs 110-116 set out the requirements for reversing an impairment loss recognised for an asset or a cash-generating unit in prior periods. These requirements use the term an asset but apply equally to an individual .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

coverable amount of that asset. 111 In assessing whether there is any indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased, an entity shall consider, as a minimum, the following indications: External sources of information (a) there are observable indications that the asset s value has increased significantly during the period. (b) significant changes with a favourable effect on the entity have taken place durin .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ficant changes with a favourable effect on the entity have taken place during the period, or are expected to take place in the near future, 1062 in the extent to which, or manner in which, the asset is used or is expected to be used. These changes include costs incurred during the period to improve or enhance the asset s performance or restructure the operation to which the asset belongs. (e) evidence is available from internal reporting that indicates that the economic performance of the asset .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

th the Indian Accounting Standard applicable to the asset, even if no impairment loss is reversed for the asset. 114 An impairment loss recognised in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset s recoverable amount since the last impairment loss was recognised. If this is the case, the carrying amount of the asset shall, except as described in paragraph 117, be increased to its recoverable .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ther recoverable amount is based on fair value less costs of disposal or value in use); (b) if recoverable amount was based on value in use, a change in the amount or timing of estimated future cash flows or in the discount rate; or (c) if recoverable amount was based on fair value less costs of disposal, a change in estimate of the components of fair value less costs of disposal. 116 An asset s value in use may become greater than the asset s carrying amount simply because the present value of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

shall not exceed the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years. 118 Any increase in the carrying amount of an asset other than goodwill above the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior years is a revaluation. In accounting for such a revaluation, an entity applies the Indian Ac .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ent loss on a revalued asset is recognised in other comprehensive income and increases the revaluation surplus for that asset. However, to the extent that an impairment loss on the same revalued asset was previously recognised in profit or loss, a reversal of that impairment loss is also recognised in profit or loss. 121 After a reversal of an impairment loss is recognised, the depreciation (amortisation) charge for the asset shall be adjusted in future periods to allocate the asset s revised ca .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

123 In allocating a reversal of an impairment loss for a cash-generating unit in accordance with paragraph 122, the carrying amount of an asset shall not be increased above the lower of: (a) its recoverable amount (if determinable); and (b) the carrying amount that would have been determined (net of amortisation or depreciation) had no impairment loss been recognised for the asset in prior periods. The amount of the reversal of the impairment loss that would otherwise have been allocated to the .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

goodwill, rather than a reversal of the impairment loss recognised for the acquired goodwill. Disclosure 126 An entity shall disclose the following for each class of assets: (a) the amount of impairment losses recognised in profit or loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are included. (b) the amount of reversals of impairment losses recognised in profit or loss during the period and the line item(s) of the statement of p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

for the class of assets. For example, this information may be included in a reconciliation of the carrying amount of property, plant and equipment, at the beginning and end of the period, as required by Ind AS 16. 129 An entity that reports segment information in accordance with Ind AS 108, shall disclose the following for each reportable segment: (a) the amount of impairment losses recognised in profit or loss and in other comprehensive income during the period. (b) the amount of reversals of i .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the asset; and (ii) if the entity reports segment information in accordance with Ind AS 108, the reportable segment to which the asset belongs. (d) for a cash-generating unit: (i) a description of the cash-generating unit (such as whether it is a product line, a plant, a business operation, a geographical area, or a reportable segment as defined in Ind AS 108); (ii) the amount of the impairment loss recognised or reversed by class of assets and, if the entity reports segment information in accor .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

) is its fair value less costs of disposal or its value in use. (f) if the recoverable amount is fair value less costs of disposal, the entity shall disclose the following information: (i) the level of the fair value hierarchy (see Ind AS 113) within which the fair value measurement of the asset (cash-generating unit) is categorised in its entirety (without taking into account whether the costs of disposal are observable); (ii) for fair value measurements categorised within Level 2 and Level 3 o .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

t s (cash-generating unit s) recoverable amount is most sensitive. The entity shall also disclose the discount rate(s) used in the current measurement and previous measurement if fair value less costs of disposal is measured using a present value technique. (g) if recoverable amount is value in use, the discount rate(s) used in the current estimate and previous estimate (if any) of value in use. 131 An entity shall disclose the following information for the aggregate impairment losses and the ag .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

assets (cash-generating units) during the period. However, paragraph 134 requires an entity to disclose information about the estimates used to measure the recoverable amount of a cash-generating unit when goodwill or an intangible asset with an indefinite useful life is included in the carrying amount of that unit. 133 If, in accordance with paragraph 84, any portion of the goodwill acquired in a business combination during the period has not been allocated to a cash1067 generating unit (group .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

useful lives allocated to that unit (group of units) is significant in comparison with the entity s total carrying amount of goodwill or intangible assets with indefinite useful lives: (a) the carrying amount of goodwill allocated to the unit (group of units). (b) the carrying amount of intangible assets with indefinite useful lives allocated to the unit (group of units). (c) the basis on which the unit s (group of units ) recoverable amount has been determined (ie value in use or fair value les .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

, if appropriate, are consistent with external sources of information, and, if not, how and why they differ from past experience or external sources of information. (iii) the period over which management has projected cash flows based on financial budgets/forecasts approved by management and, when a period greater than five years is used for a cash-generating unit (group of units), an explanation of why that longer period is justified. (iv) the growth rate used to extrapolate cash flow projectio .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e(s) used to measure fair value less costs of disposal. An entity is not required to provide the disclosures required by Ind AS 113. If fair value less costs of disposal is not measured using a quoted price for an identical unit (group of units), an entity shall disclose the following information: (i) each key assumption on which management has based its determination of fair value less costs of disposal. Key assumptions are those to which the unit s (group of units ) recoverable amount is most .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

servability of 'costs of disposal'). (iiB) if there has been a change in valuation technique, the change and the reason(s) for making it. If fair value less costs of disposal is measured using discounted cash flow projections, an entity shall disclose the following information: (iii) the period over which management has projected cash flows. (iv) the growth rate used to extrapolate cash flow projections. (v) the discount rate(s) applied to the cash flow projections. (f) if a reasonably p .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

f that change on the other variables used to measure recoverable amount, in order for the unit s (group of units ) recoverable amount to be equal to its carrying amount. 135 If some or all of the carrying amount of goodwill or intangible assets with indefinite useful lives is allocated across multiple cash-generating units (groups of units), and the amount so allocated to each unit (group of units) is not significant in comparison with the entity s total carrying amount of goodwill or intangible .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

otal carrying amount of goodwill or intangible assets with indefinite useful lives, an entity shall disclose that fact, together with: (a) the aggregate carrying amount of goodwill allocated to those units (groups of units). (b) the aggregate carrying amount of intangible assets with indefinite useful lives allocated to those units (groups of units). (c) a description of the key assumption(s). (d) a description of management s approach to determining the value(s) assigned to the key assumption(s .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

eeds the aggregate of their carrying amounts. (ii) the value(s) assigned to the key assumption(s). (iii) the amount by which the value(s) assigned to the key assumption(s) must change, after incorporating any consequential effects of the change on the other variables used to measure recoverable amount, in order for the aggregate of the units (groups of units ) recoverable amounts to be equal to the aggregate of their carrying amounts. 136 The most recent detailed calculation made in a preceding .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the case of an intangible asset, the term amortisation is generally used instead of depreciation . The two terms have the same meaning. 2 Once an asset meets the criteria to be classified as held for sale (or is included in a disposal group that is classified as held for sale), it is excluded from the scope of this Standard and is accounted for in accordance with Ind AS 105, Non-current Assets Held for Sale and Discontinued Operations. Appendix A Using present value techniques to measure value .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ts to derive from the asset; (b) expectations about possible variations in the amount or timing of those cash flows; (c) the time value of money, represented by the current market risk-free rate of interest; (d) the price for bearing the uncertainty inherent in the asset; and (e) other, sometimes unidentifiable, factors (such as illiquidity) that market participants would reflect in pricing the future cash flows the entity expects to derive from the asset. A2 This appendix contrasts two approach .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

of future cash flows, the result should be to reflect the expected present value of the future cash flows, ie the weighted average of all possible outcomes. General principles A3 The techniques used to estimate future cash flows and interest rates will vary from one situation to another depending on the circumstances surrounding the asset in question. However, the following general principles govern any application of present value techniques in measuring assets: (a) interest rates used to disco .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ready reflect assumptions about future defaults. (b) estimated cash flows and discount rates should be free from both bias and factors unrelated to the asset in question. For example, deliberately understating estimated net cash flows to enhance the apparent future profitability of an asset introduces a bias into the measurement. (c) estimated cash flows or discount rates should reflect the range of possible outcomes rather than a single most likely, minimum or maximum possible amount. Tradition .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

e emphasis on selection of the discount rate. A5 In some circumstances, such as those in which comparable assets can be observed in the marketplace, a traditional approach is relatively easy to apply. For assets with contractual cash flows, it is consistent with the manner in which marketplace participants describe assets, as in a 12 per cent bond . A6 However, the traditional approach may not appropriately address some complex measurement problems, such as the measurement of non-financial asset .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ose of the asset being measured. Therefore, the measurer must do the following: (a) identify the set of cash flows that will be discounted; (b) identify another asset in the marketplace that appears to have similar cash flow characteristics; (c) compare the cash flow sets from the two items to ensure that they are similar (for example, are both sets contractual cash flows, or is one contractual and the other an estimated cash flow?); (d) evaluate whether there is an element in one item that is n .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ely cash flow. For example, a cash flow might be ₹ 100, ₹ 200 or ₹ 300 with probabilities of 10 per cent, 60 per cent and 30 per cent, respectively. The expected cash flow is ₹ 220. The expected cash flow approach thus differs from the traditional approach by focusing on direct analysis of the cash flows in question and on more explicit statements of the assumptions used in the measurement. A8 The expected cash flow approach also allows use of present value techniques whe .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

value of ₹ 1,000 in 3 years at 5.50% ₹ 851.61 Probability 30.00% ₹ 255.48 Expected present value ₹ 892.36 A9 The expected present value of ₹ 892.36 differs from the traditional notion of a best estimate of ₹ 902.73 (the 60 per cent probability). A traditional present value computation applied to this example requires a decision about which of the possible timings of cash flows to use and, accordingly, would not reflect the probabilities of other timings. This .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

transparency of the expected cash flow approach. A11 Many estimates developed in current practice already incorporate the elements of expected cash flows informally. In addition, accountants often face the need to measure an asset using limited information about the probabilities of possible cash flows. For example, an accountant might be confronted with the following situations: (a) the estimated amount falls somewhere between ₹ 50 and ₹ 250, but no amount in the range is more likel .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

30 per cent probability), or ₹ 100 (60 per cent probability). Based on that limited information, the estimated expected cash flow is ₹ 140 [(50 × 0.10) + (250 × 0.30) + (100 × 0.60)]. In each case, the estimated expected cash flow is likely to provide a better estimate of value in use than the minimum, most likely or maximum amount taken alone. A12 The application of an expected cash flow approach is subject to a cost-benefit constraint. In some cases, an entity may .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

tem with a limited number of possible outcomes. They offer an example of an asset with two possible outcomes: a 90 per cent probability that the cash flow will be ₹ 10 and a 10 per cent probability that the cash flow will be ₹ 1,000. They observe that the expected cash flow in that example is ₹ 109 and criticise that result as not representing either of the amounts that may ultimately be paid. A14 Assertions like the one just outlined reflect underlying disagreement with the me .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

easurement of the asset. Instead, the uncertain cash flow is presented as if it were a certain cash flow. No rational entity would sell an asset with these characteristics for ₹ 10. Discount rate A15 Whichever approach an entity adopts for measuring the value in use of an asset, interest rates used to discount cash flows should not reflect risks for which the estimated cash flows have been adjusted. Otherwise, the effect of some assumptions will be double-counted. A16 When an asset-specifi .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

ount the following rates: (a) the entity s weighted average cost of capital determined using techniques such as the Capital Asset Pricing Model; (b) the entity s incremental borrowing rate; and (c) other market borrowing rates. A18 However, these rates must be adjusted: (a) to reflect the way that the market would assess the specific risks associated with the asset s estimated cash flows; and (b) to exclude risks that are not relevant to the asset s estimated cash flows or for which the estimate .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

o estimate the discount rate is post-tax, that basis is adjusted to reflect a pre-tax rate. A21 An entity normally uses a single discount rate for the estimate of an asset s value in use. However, an entity uses separate discount rates for different future periods where value in use is sensitive to a difference in risks for different periods or to the term structure of interest rates. Appendix B References to matters contained in other Accounting Standards This Appendix is an integral part of th .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

he Ind AS. C1 In accordance with Ind AS 103, the acquirer measures and recognises goodwill as of the acquisition date as the excess of (a) over (b) below: (a) the aggregate of: (i) the consideration transferred measured in accordance with Ind AS 103, which generally requires acquisition-date fair value; (ii) the amount of any non-controlling interest in the acquiree measured in accordance with Ind AS 103; and (iii) in a business combination achieved in stages, the acquisition-date fair value of .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

other assets or liabilities of the acquiree are assigned to those units, or groups of units. It is possible that some of the synergies resulting from a business combination will be allocated to a cash-generating unit in which the non-controlling interest does not have an interest. Testing for impairment C3 Testing for impairment involves comparing the recoverable amount of a cashgenerating unit with the carrying amount of the cash-generating unit. C4 If an entity measures non-controlling intere .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

is adjusted carrying amount is then compared with the recoverable amount of the unit to determine whether the cash generating unit is impaired. Allocating an impairment loss C5 Paragraph 104 requires any identified impairment loss to be allocated first to reduce the carrying amount of goodwill allocated to the unit and then to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the unit. C6 If a subsidiary, or part of a subsidiary, with a non-controlling in .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

the parts of the cashgenerating unit on the basis of: (a) to the extent that the impairment relates to goodwill in the cash-generating unit, the relative carrying values of the goodwill of the parts before the impairment; and (b) to the extent that the impairment relates to identifiable assets in the cash generating unit, the relative carrying values of the net identifiable assets of the parts before the impairment. Any such impairment is allocated to the assets of the parts of each unit pro rat .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

irment loss. In such cases, only the impairment loss relating to the goodwill that is allocated to the parent is recognised as a goodwill impairment loss. C9 [Refer Appendix 1] Appendix 1 Note: This Appendix is not a part of the Indian Accounting Standard. The purpose of this Appendix is only to bring out the major differences, if any, between Indian Accounting Standard (Ind AS) 36 and the corresponding International Accounting Standard (IAS) 36, , issued by the International Accounting Standard .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

een included in Ind AS 101, First-time Adoption of Indian Accounting Standards, corresponding to IFRS 1, First-time Adoption of International Financial Reporting Standards. 3. Different terminology is used, as used in existing laws eg, the term balance sheet is used instead of Statement of financial position and Statement of profit and loss is used instead of Statement of comprehensive income . 4 Following Paragraphs have been deleted as a consequence of Ind AS 113, Fair Value Measurement. Howev .....

X X X X X X X

Extract - Part text only
Click here to Access Full Contents

X X X X X X X

 

 

 

 

 



|| Home || Acts and Rules || Notifications || Circulars || Schedules || Tariff || Forms || Case Laws || Manuals ||

|| About us || Contact us || Disclaimer || Terms of Use || Privacy Policy || TMI Database || Members || Site Map ||

© Taxmanagementindia.com [A unit of MS Knowledge Processing Pvt. Ltd.] All rights reserved.

Go to Mobile Version