FRS 136 Impairment of Assets (“IA”)

1. FRS 136 Impairment of Assets (“IA”) Introduction: • Impairment of an asset refers to the diminution in value of an asset • If there are indications that assets could be impaired then a review is done to measure the impairment • Where the carrying value (“CV”) of an asset > its recoverable amount (“RA”) = IL • RA = the higher of its FV - costs to sell (net selling price, “NSP”) and its value in use (“VIU”) • Applicable to tangibles assets, intangible assets (“IA”) and also assets carried at revalued amount

2. 1.Identifying an Asset That May Be Impaired • Enterprises should assess at each reporting date whether there is any indication that an asset may be impaired • For IA with indefinite useful life or not available for use - should test for impairment annually • Para 12, set out the minimum external and internal source of information for impairment testing • Refer page 477 • Enterprise are required to measure the RA of all assets whenever there is an indication of impairment • Thereafter, asset’s remaining useful life, depreciation method or residual value needs to be adjusted accordingly

3. 2 Determining RA • RA = the higher of its FV - costs to sell (net selling price, “NSP”) and its value in use (“VIU”) • Costs to sell = legal costs, stamp duty and etc • VIU = PV of the estimated CF expected to derive from continuing use of the asset (para 6) • Refer example 1 • Refer para 30 on the calculation of VIU • Discount rate = pre-tax rate that reflect current market risk. Normally is the borrowing rates

4. 3 Recognition and Measurement of an IL • IL should recognised to IS immediately if RA < CA • For assets held as revalued amount , IL is to treated as a revaluation decrease • If IL > CA , a liability should be recognised • Depreciation charged should be adjusted prospectively

5. 4 Cash-Generating Unit (“CGU”) • CGU is the smallest identifiable group of assets that: • - generates cash inflows from continuing use, and • - are largely dependent of the cash inflows from others assets or groups of assets • RA of a CGU = the higher of its NSP of the CGU and its VIU • Refer Example 2, 3 and 4

6. 4.1 Allocating goodwill (“GW”) to CGU • Para 80 stated that for the purpose of impairment testing, GW acquired in a business combination should be allocated, to each acquirer’s CGU • If the initial allocation of GW cannot be completed before the end of the annual period in which the business combination occurs, the initial recognition should be completed before the end of the first annual period after the acquisition date • GW that relates to the CGU is to be tested for impairment annually

7. 4.2 IL for CGU • Step 1 : to the GW allocated to the CGU • Step 2 : to all other assets in the CGU on a pro rate basis • The CA of an asset should not be reduced below the highest of: • -NSP • -VIU, and • -Zero • Refer example 5

8. 5 Corporate Assets (“COA”) • Is a group or divisional assets such as head office building, EDP equipment and etc • They do not generate cash inflows independently from other assets and their CA cannot be fully attributed to the CGU • The RA of an individual COA cannot be determined unless management has decided to dispose of the asset • Similarly, the IL should be first allocated to GW, and then to the other assets on a pro rate basis

9. 6 Reversal of IL • May due to increase in asset’s market value and favourable changes in technological, economic, legal environment and etc • If such indication exists, the enterprise should estimate the RA of the asset • If the RA > CA other than GW, the increase is a reversal of an IL

10. 6.1 Reversal of an IL for an Individual Asset • Should be increased to its new RA but should not exceed the original amount or depreciated CV had the impairment not taken place • Reversal should be recognised as an income • For assets held as revalued amount , reversal is to treated as a revaluation increase • Depreciation charged should be adjusted prospectively • Refer example 6

11. 6.2 Reversal of an IL for a CGU • Should be allocated to the assets of the unit, except for GW, pro rate on the CA of those assets • Should be increased to its new RA (if determinable) but should not exceed the original amount or depreciated CV had the impairment not taken place • 6.3 Reversal of an IL for GW • Shall not be reversed in a subsequent period (para 124) • Pls read section 7