Impairment and asset disclosure

Learning goals

• Identify impairment indicators and the correct testing level.
• Apply a stated IFRS or ASPE long-lived-asset impairment test.
• Draft a disclosure that explains amount, cause, method, and uncertainty.

Prerequisite check

Carrying amount is cost less accumulated depreciation/amortization and prior impairment. An asset can be physically usable yet impaired when expected economic benefits have fallen.

Vocabulary

• Cash-generating unit (CGU): smallest group generating largely independent cash inflows under IFRS.
• Recoverable amount: higher of value in use and fair value less costs of disposal under IAS 36.
• Value in use: present value of future cash flows from continuing use and disposal.
• Asset group: ASPE testing level based on largely independent cash flows.
• Impairment indicator: internal or external evidence carrying amount may not be recoverable.

Core idea

Framework matters. Under IAS 36, impairment occurs when carrying amount exceeds recoverable amount; certain non-goodwill reversals may be recognized if estimates recover. Under Canadian ASPE Section 3063 for long-lived assets held for use, an indicator leads first to a recoverability comparison using undiscounted cash flows; if not recoverable, write down to fair value, and the loss is not reversed. Goodwill and financial assets have separate guidance.

IAS 36 is not purely indicator-driven. Goodwill, indefinite-life intangibles, and intangibles not yet available for use must be tested annually and also when an impairment indicator exists. Other IAS 36 assets are generally tested when indicators exist. ASPE entities follow the triggers and models in the applicable ASPE sections rather than importing the IAS 36 annual-test rule automatically.

Why this treatment makes sense

Assets should not remain above supported benefits, but a model must avoid recognizing ordinary market volatility as arbitrary loss. Testing level and documented cash flows prevent strong assets from inappropriately shielding weak ones.

A repeatable method

1. Identify the asset and applicable guidance; exclude assets with separate models.
2. Determine whether an annual test is mandatory under IFRS; otherwise document indicators such as damage, obsolescence, market decline, losses, or restructuring.
3. Determine the correct CGU/asset group consistently.
4. Apply the stated framework's sequence and supported cash flows.
5. Record and allocate loss without reducing an asset below permitted floors.
6. Revise future depreciation using the new carrying amount.
7. Disclose event, amount, statement line, testing level, method, rate, and key uncertainty.

Worked example

Under an IFRS case, Lakeview Print's CGU has a $620,000 carrying amount. Fair value less costs of disposal is $510,000 and value in use is $545,000. Recoverable amount is the higher, $545,000. Impairment loss = $75,000.

Debit Impairment Loss $75,000; credit Accumulated Impairment/Assets $75,000. If the CGU contains $20,000 goodwill, allocate $20,000 to goodwill first and $55,000 pro rata to other eligible assets, respecting individual floors. If remaining depreciable assets of $525,000 have five years and no residual, future annual depreciation is $105,000.

Disclosure example: “A $75,000 impairment arose from sustained volume loss in the printing CGU. Recoverable amount of $545,000 was based on value in use using board- approved cash-flow forecasts and the case-supplied discount rate.” Add sensitivity when a reasonable assumption change could be material.

Journal, ledger, and statement connection

The loss reduces assets and profit; the fixed-asset register must carry revised amounts into depreciation. The model ties to approved forecasts, budgets, and external evidence. Note disclosures reconcile the statement total to the tested unit.

Common mistakes

• Combining IFRS recoverable amount with the ASPE undiscounted screen.
• Testing at a level chosen to avoid a loss.
• Including unsupported growth or future restructuring benefits in cash flows.
• Forgetting to update depreciation after impairment.

Guided practice

IFRS carrying amount $280,000; value in use $235,000; fair value less costs of disposal $250,000. Recoverable amount $250,000; loss $30,000. Use $250,000 because it is the higher supported recovery route.

Independent practice

Level 1 — IFRS: Carrying amount $410,000; VIU $360,000; FVLCD $372,000. Calculate loss.

Level 2 — ASPE: Carrying amount $500,000; undiscounted cash flows $470,000; fair value $430,000. Apply the stated long-lived-asset model.

Level 3 — disclosure: Draft four disclosure points for a plant impaired after a major customer closure.

Self-check and solutions

Level 1: Recoverable amount $372,000; impairment $38,000.

Level 2: The asset group fails the undiscounted recoverability screen because $500,000 exceeds $470,000, then is written to $430,000; loss $70,000. Do not discount again after fair value is supplied.

Level 3: Describe customer closure and affected plant/group; state loss and statement line; identify recoverable/fair-value method and key assumptions; explain testing level and sensitivity or uncertainty. Avoid vague “market conditions” language.

Retrieval practice

1. Define IFRS recoverable amount.
2. What cash-flow basis is used in the ASPE recoverability screen described here?
3. What happens to future depreciation after a write-down?

Answers: higher of VIU and FVLCD; undiscounted; recalculate prospectively from the new amount.

Exam-style application

Compare an IFRS and ASPE result using the same data, show each model's sequence, prepare the entry, and draft a transparent note. Explicitly identify which numbers are assumptions rather than facts.

Lesson summary

Impairment is framework-specific evidence work: choose the right asset group, apply the correct sequence, update the ledgers, and disclose the cause and uncertainty.