AS-28 – Impairment of Assets :
The objective of this Standard is to prescribe the procedures that an enterprise applies to ensure that its assets are carried at no more than their recoverable amount.
In assessing whether there is any indication that an asset may be impaired, an enterprise should consider, as a minimum the following indications:
(a) External sources of information:
(i) 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;
(ii) significant changes with an adverse effect on the enterprise 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 enterprise operates or in the market to which an asset is dedicated;
(iii) 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;
(iv) the carrying amount of the net assets of the reporting enterprise is more than its market capitalisation;
(b) Internal sources of information:
(i) evidence is available of obsolescence or physical damage of an asset;
(ii) significant changes with an adverse effect on the enterprise 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 plans to discontinue or restructure the operation to which an asset belongs or to dispose of an asset before the previously expected date; and
(iii) evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.
In measuring value in use the following facts should be considered:
(i) cash flow projections should be based on reasonable and supportable assumptions that represent management’s best estimate of the set of economic conditions that will exist over the remaining useful life of the asset. Greater weight should be given to external evidence;
(ii) cash flow projections should be based on the most recent financial budgets/ forecasts that have been approved by management. Projections based on these budgets/forecasts should cover a maximum period of five years, unless a longer period can be justified; and
(iii) cash flow projections beyond the period covered by the most recent budgets/ forecasts should be estimated by extrapolating the projections based on the budgets/forecasts using a steady or declining growth rate for subsequent years, unless an increasing rate can be justified. This growth rate should not exceed the long-term average growth rate for the products, industries, or country or countries in which the enterprise operates, or for the market in which the asset is used, unless a higher rate can be justified.
The estimates of future cash flows should include the following:
(i) projections of cash inflows from the continuing use of the asset;
(ii) 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 that can be directly attributed, or allocated on a reasonable and consistent basis, to the asset; and
(iii) net cash flows, if any, to be received (or paid) for the disposal of the asset at the end of its useful life. In testing a cash-generating unit for impairment, an enterprise should identify whether goodwill that relates to this cash-generating unit is recognised in the financial statements. If this is the case, an enterprise should:
(a) perform a ‘bottom-up’ test, that is, the enterprise should:
(i) identify whether the carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash-generating unit under review; and
(ii) then, compare the recoverable amount of the cash-generating unit under review to its carrying amount (including the carrying amount of allocated goodwill, if any) and recognise any impairment loss.
The enterprise should perform the step at (ii) above even if none of the carrying amount of goodwill can be allocated on a reasonable and consistent basis to the cash-generating unit under review; and
(b) if, in performing the ‘bottom-up’ test, the enterprise could not allocate the carrying amount of goodwill on a reasonable and consistent basis to the cash-generating unit under review, the enterprise should also perform a ‘top-down’ test, that is, the enterprise should:
(i) identify the smallest cash-generating unit that includes the cash-generating unit under review and to which the carrying amount of goodwill can be allocated on a reasonable and consistent basis (the ‘larger’ cash-generating unit); and
(ii) then, compare the recoverable amount of the larger cash-generating unit to its carrying amount (including the carrying amount of allocated goodwill) and recognise any impairment loss.
The increased carrying amount of an asset due to a reversal of an impairment loss should 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 accounting periods.
For each class of assets, the financial statements should disclose the following:
(i) the amount of impairment losses recognised in the statement of profit and loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are included;
(ii) the amount of reversals of impairment losses recognised in the statement of profit and loss during the period and the line item(s) of the statement of profit and loss in which those impairment losses are reversed;
(iii) the amount of impairment losses recognised directly against revaluation surplus during the period; and
(iv) the amount of reversals of impairment losses recognised directly in revaluation surplus during the period.