An impairment loss occurs when the carrying amount of an asset exceeds its recoverable amount.  This section shall be applied in accounting for the impairment of all assets other than the following, for which other sections of this IFRS establish impairment requirements:

1. deferred tax assets (see Section 29 Income Tax).
2. assets arising from employee benefits (see Section 28 Employee Benefits).
3. financial assets within the scope of Section 11 Basic Financial Instruments or Section 12 Other Financial Instruments Issues.
4. investment property measured at fair value (see Section 16 Investment Property).
5. biological assets related to agricultural activity measured at fair value less estimated costs to sell (see Section 34 Specialised Activities).

Like IFRS SMEs, the impairment standards (for long-lived assets and intangibles) do not apply to:

• Deferred tax assets
• Financial assets
• Biological assets of agricultuaral producers

Unlike IFRS SMEs, there is no specific definition of investment property, and there is no separate accounting for investment property.

Unlike IFRS SMEs, the impairment standards do apply to biological assets of entities other than agricultural producers.

Unlike IFRS SMEs, the impairment standards also do not apply to:

• Inventories
• Investments in equity-method investees and joint ventures
• Computer software to be sold, leased, or otherwise marketed
• Unproved oil and gas properties that are being accounted for using the successful-efforts method of accounting
• Long-lived assets for which the accounted is prescribed in accounting pronouncements that apply to certain specialized industries such as the record and music industry, the broadcasting industry, the insurance industry, or regulated enterprises.

External sources of information

1. During the period, an asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use.
2. Significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated.
3. Market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect materially the discount rate used in calculating an asset’s value in use and decrease the asset’s fair value less costs to sell.
4. The carrying amount of the net assets of the entity is more than the estimated fair value of the entity as a whole (such an estimate may have been made, for example, in relation to the potential sale of part or all of the entity).

Internal sources of information

5. Evidence is available of obsolescence or physical damage of an asset.
6. Significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used.  These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.
7. Evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.  In this context economic performance includes operating results and cash flows.

Unlike IFRS SMEs, fair value less costs to sell is not used in testing long-lived assets for impairment.  (See 27.11.)

Value in use is the present value of the future cash flows expected to be derived from an asset.  This present value calculation involves the following steps:

1. estimating the future cash inflows and outflows to be derived from continuing use of the asset and from its ultimate disposal, and
2. applying the appropriate discount rate to those future cash flows.
   

The following elements shall be reflected in the calculation of an asset’s value in use:

1. an estimate of the future cash flows the entity expects to derive from the asset.
2. expectations about possible variations in the amount or timing of those future cash flows.
3. the time value of money, represented by the current market risk-free rate of interest.
4. the price for bearing the uncertainty inherent in the asset.
5. other factors, such as illiquidity, that market participants would reflect in pricing the future cash flows the entity expects to derive from the asset.

In measuring value in use, estimates of future cash flows shall include:

1. projections of cash inflows from the continuing use of the asset.
2. projections of cash outflows that are necessarily incurred to generate the cash inflows from continuing use of the asset (including cash outflows to prepare the asset for use) and can be directly attributed, or allocated on a reasonable and consistent basis, to the asset.
3. net cash flows, if any, expected to be received (or paid) for the disposal of the asset at the end of its useful life in an arm’s length transaction between knowledgeable, willing parties.

1. Same.
2. Same except that the estimates would also include interest payments that will be capitalized as part of the cost of an asset under development (see Section 25, Borrowing Costs).
3. Same.

Estimates of future cash flows shall not include:

1. cash inflows or outflows from financing activities, or
2. income tax receipts or payments.

Like IFRS SMEs, estimates of future cash flows used to test for recoverability exclude interest charges that will be recognized as an expense when incurred but, unlike IFRS SMEs, include the principal amount of any liabilities included in the asset group.

Future cash flows shall be estimated for the asset in its current condition.  Estimates of future cash flows shall not include estimated future cash inflows or outflows that are expected to arise from:

1. a future restructuring to which an entity is not yet committed, or
2. improving or enhancing the asset’s performance.

2. Same.

The discount rate (rates) used in the present value calculation shall be a pre-tax rate (rates) that reflect(s) current market assessments of:

1. the time value of money, and
2. the risks specific to the asset for which the future cash flow estimates have not been adjusted.

An impairment loss shall be recognised for a cash-generating unit if, and only if, the recoverable amount of the unit is less than the carrying amount of the unit.  The impairment loss shall be allocated to reduce the carrying amount of the assets of the unit in the following order:

1. first, to reduce the carrying amount of any goodwill allocated to the cash-generating unit, and
2. then, to the other assets of the unit pro rata on the basis of the carrying amount of each asset in the cash-generating unit.

2. Same.

However, an entity shall not reduce the carrying amount of any asset in the cash-generating unit below the highest of:

1. its fair value less costs to sell (if determinable);
2. its value in use (if determinable); and
3. zero.

If goodwill cannot be allocated to individual cash-generating units (or groups of cash-generating units) on a non-arbitrary basis, then for the purposes of testing goodwill the entity shall test the impairment of goodwill by determining the recoverable amount of either (a) or (b):

1. the acquired entity in its entirety, if the goodwill relates to an acquired entity that has not been integrated.  Integrated means the acquired business has been restructured or dissolved into the reporting entity or other subsidiaries.
2. the entire group of entities, excluding any entities that have not been integrated, if the goodwill relates to an entity that has been integrated.

For all assets other than goodwill, an entity shall assess at each reporting date whether there is any indication that an impairment loss recognised in prior periods may no longer exist or may have decreased.  Indications that an impairment loss may have decreased or may no longer exist are generally the opposite of those set out in paragraph 27.9.  If any such indication exists, the entity shall determine whether all or part of the prior impairment loss should be reversed.  The procedure for making that determination will depend on whether the prior impairment loss on the asset was based on:

1. the recoverable amount of that individual asset (see paragraph 27.30), or
2. the recoverable amount of the cash-generating unit to which the asset belongs (see paragraph 27.31).

When the prior impairment loss was based on the recoverable amount of the individual impaired asset, the following requirements apply:

1. The entity shall estimate the recoverable amount of the asset at the current reporting date.
2. If the estimated recoverable amount of the asset exceeds its carrying amount, the entity shall increase the carrying amount to recoverable amount, subject to the limitation described in (c) below.  That increase is a reversal of an impairment loss.  The entity shall recognise the reversal immediately in profit or loss.
3. The reversal of an impairment loss shall not increase the carrying amount of the asset 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.
4. After a reversal of an impairment loss is recognised, the entity shall adjust the depreciation (amortisation) charge for the asset 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.

Not applicable—see 27.29.

When the original impairment loss was based on the recoverable amount of the cash-generating unit to which the asset belongs, the following requirements apply:

1. The entity shall estimate the recoverable amount of that cash-generating unit at the current reporting date.
2. If the estimated recoverable amount of the cash-generating unit exceeds its carrying amount, that excess is a reversal of an impairment loss.  The entity shall allocate the amount of that reversal to the assets of the unit, except for goodwill, pro rata with the carrying amounts of those assets, subject to the limitation described in (c) below.  Those increases in carrying amounts shall be treated as reversals of impairment losses for individual assets and recognised immediately in profit or loss.
3. In allocating a reversal of an impairment loss for a cash-generating unit, the reversal shall not increase the carrying amount of any asset above the lower of
1. its recoverable amount, and
2. 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.
4. Any excess amount of the reversal of the impairment loss that cannot be allocated to an asset because of the restriction in (c) above shall be allocated pro rata to the other assets of the cash-generating unit, except for goodwill.
5. After a reversal of an impairment loss is recognised, if applicable, the entity shall adjust the depreciation (amortisation) charge for each asset in the cash-generating unit 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.

Not applicable—see 27.29.