first applied.
For those entities early adopting IFRS 17 and for the detailed discussions and
requirements of this new standard, see Chapter 52.
References
1
IFRIC Update, September 2012.
14 IFRIC Update, January 2011.
2
IFRIC Update, September 2012.
15 IFRIC Update, May 2011.
3
IFRIC Update, January 2013.
16 IASB Update, July 2013.
4
IASB Update, December 2014.
17 IFRIC Update, March 2016.
5
IFRIC Update, July 2011.
18 IASB Update, May 2016.
6
Example H – acquisition of investment
19 The IVS Framework, International Valuation
properties, Exposure Draft – Definition of a
Standards 2013, IVSC, June 2013, para. 29.
Business and Accounting for Previously Held
20 IFRIC Update, July 2014.
Interests, Proposed amendments to IFRS 3 and
21 Best Practices Recommendations, EPRA,
IFRS 11 – (ED/2016/1), IASB, June 2016,
November 2016, p.19, section 4.1.
p.25.
22 Review Findings and Recommendations –
7
Example I – acquisition of investment properties,
2009, Financial Reporting Review Panel,
Exposure Draft – Definition of a Business and
July 2009, p.11.
Accounting for Previously Held Interests,
23 EPRA Position Paper on IFRS 13, Fair Value
Proposed amendments to IFRS 3 and IFRS 11 –
Measurement & Illustrative Disclosures,
(ED/2016/1), IASB, June 2016, pp.25-26.
EPRA, February 2013, p.4.
8
IASB Update, April 2017.
24 Report – 11th Extract from the EECS’s Database
9
IASB Update, June 2017 and October 2017.
of Enforcement (ESMA/2011/265), European
10 IFRIC Update, June 2017.
Securities and Markets Authority (ESMA),
11 IFRIC Update, November 2017.
August 2011, paras. 76-81.
12 IFRIC Update, March 2017.
13 UITF abstract 28 – Operating lease incentives,
UK Accounting Standards Board, February 2001,
para. 3.
1421
Chapter 20
Impairment of fixed
assets and goodwill
1 INTRODUCTION ........................................................................................... 1427
1.1
The theory behind the impairment review ................................................... 1427
1.2
Key features of the impairment review ......................................................... 1428
1.3 Scope
..................................................................................................................... 1430
2 WHEN AN IMPAIRMENT TEST IS REQUIRED .............................................. 1431
2.1
Indicators of impairment ................................................................................... 1432
2.1.1
Market capitalisation ......................................................................... 1433
2.1.2 (Future)
performance
.........................................................................
1434
2.1.3 Individual
assets
or part of CGU? .................................................... 1434
2.1.4 Interest
rates
........................................................................................
1434
3 DIVIDING THE ENTITY INTO CASH-GENERATING UNITS (CGUS) ........... 1435
3.1
CGUs and intangible assets ............................................................................... 1441
3.2
Active markets and identifying CGUs ............................................................ 1442
4 IDENTIFYING THE CARRYING AMOUNT OF CGU ASSETS ........................1443
4.1
Consistency and the impairment test ............................................................. 1444
4.1.1
Environmental provisions and similar provisions and
liabilities ................................................................................................ 1445
4.1.2 Lease
liabilities
under IFRS 16 ......................................................... 1446
4.1.3
Trade debtors and creditors ............................................................. 1447
4.1.4 Pensions
................................................................................................
1448
4.1.5 Cash
flow
hedges ................................................................................ 1448
4.2
Corporate assets .................................................................................................. 1449
5 RECOVERABLE AMOUNT ............................................................................. 1451
5.1
Impairment of assets held for sale ................................................................... 1452
6 FAIR VALUE LESS COSTS OF DISPOSAL ...................................................... 1453
1422 Chapter 20
6.1
Estimating FVLCD .............................................................................................. 1454
6.1.1
FVLCD and the unit of account ....................................................... 1456
6.1.2
Depreciated replacement cost or current replacement
cost as FVLCD ..................................................................................... 1458
7 DETERMINING VALUE IN USE (VIU) .......................................................... 1458
7.1
Estimating the future pre-tax cash flows of the CGU under review ......... 1460
7.1.1
Budgets and cash flows ..................................................................... 1460
7.1.2
Cash inflows and outflows from improvements and
enhancements ..................................................................................... 1461
7.1.3 Restructuring
.......................................................................................
1464
7.1.4 Terminal
values
................................................................................... 1464
7.1.5 Foreign
currency
cash flows ............................................................ 1465
7.1.6 Internal
transfer pricing ..................................................................... 1465
7.1.7
Overheads and share-based payments .......................................... 1466
7.1.8
Events after the reporting period .................................................... 1469
7.1.9 ‘Traditional’
and
‘expected
cash flow’ approach to present
value ...................................................................................................... 1469
7.2
Identifying an appropriate discount rate and discounting the future
cash flows .........
.................................................................................................... 1470
7.2.1
Discount rates and the weighted average cost of capital ........... 1474
7.2.2 Calculating
a
pre-tax discount rate ................................................. 1474
7.2.3
Calculating VIU using post-tax cash flows .................................... 1476
7.2.4 Approximations
and short cuts ........................................................ 1481
7.2.5 Disclosing
pre-tax discount rates when using a post-tax
methodology ........................................................................................ 1482
7.2.6
Determining pre-tax rates taking account of tax losses .............. 1484
7.2.7
Entity-specific WACCs and different project risks within
the entity .............................................................................................. 1484
7.2.8 Entity-specific
WACCs
and capital structure ............................... 1485
7.2.9
Use of discount rates other than the WACC ................................. 1486
7.3
Differences between fair value and value in use .......................................... 1487
8 IMPAIRMENT OF GOODWILL ...................................................................... 1487
8.1
Goodwill and its allocation to cash-generating units .................................. 1487
8.1.1
The composition of goodwill ........................................................... 1489
8.1.2
Identifying synergies and identifying CGUs or CGU
groups for allocating goodwill .......................................................... 1491
8.1.3
Measuring the goodwill allocated to CGUs or CGU groups ...... 1492
8.1.4
The effect of IFRS 8 – Operating Segments – on
impairment tests ................................................................................. 1493
8.1.4.A
Changes to operating segments .................................. 1493
Impairment of fixed assets and goodwill 1423
8.1.4.B
Aggregation of operating segments for
disclosure purposes ....................................................... 1494
8.1.5
Goodwill initially unallocated to cash-generating units ............. 1494
8.2
When to test cash-generating units with goodwill for impairment .......... 1496
8.2.1
Timing of impairment tests ............................................................... 1497
8.2.2
Sequence of impairment tests for goodwill and other
assets ..................................................................................................... 1498
8.2.3
Carry forward of a previous impairment test calculation .......... 1498
8.2.4
Reversal of impairment loss for goodwill prohibited .................. 1498
8.3
Impairment of assets and goodwill recognised on acquisition .................. 1499
8.3.1
Testing goodwill ‘created’ by deferred tax for impairment ....... 1499
8.3.2
Deferred tax assets and losses of acquired businesses................ 1503
8.4
Impairment testing when a CGU crosses more than one operating
segment ................................................................................................................. 1503
8.5
Disposal of operation within a cash-generating unit to which
goodwill has been allocated.............................................................................. 1504
8.5.1
Changes in composition of cash-generating units ....................... 1505
9 NON-CONTROLLING INTERESTS – THE IMPACT ON GOODWILL
IMPAIRMENT TESTING ............................................................................... 1508
9.1
Testing for impairment in entities with non-controlling interests
measured at the proportionate share of net identifiable assets ................ 1510
9.1.1
Acquisitions of non-controlling interests measured at the
proportionate share of net identifiable assets .............................. 1512
9.2
Testing for impairment in entities with non-controlling interests
initially measured at fair value ......................................................................... 1512
9.3
Testing for impairment in entities with non-controlling interests:
alternative allocation methodologies ............................................................... 1513
10 IMPAIRMENT OF INTANGIBLE ASSETS WITH AN INDEFINITE USEFUL
LIFE ............................................................................................................... 1516
11 RECOGNISING AND REVERSING IMPAIRMENT LOSSES ............................. 1517
11.1
Impairment losses on individual assets .......................................................... 1518
11.2 Impairment
losses and CGUs ........................................................................... 1519
11.3 Reversal of impairment loss relating to goodwill prohibited ..................... 1521
11.4 Reversal of impairment losses relating to assets other than goodwill ..... 1521
11.4.1
Reversals of impairments – cash-generating units ...................... 1524
11.4.2
Reversals of impairments – revalued assets ................................. 1524
12 GROUP AND SEPARATE FINANCIAL STATEMENT ISSUES ......................... 1525
12.1 VIU: relevant cash flows and non-arm’s length prices (transfer
pricing) .................................................................................................................. 1525
1424 Chapter 20
12.2 Goodwill in individual (or subgroup) financial statements and the
interaction with the group financial statements ........................................... 1526
12.2.1
Goodwill synergies arising outside of the reporting
entity/subgroup ................................................................................... 1527
12.2.2
The effect of IFRS 8 – Operating segments – when
allocating goodwill to CGU’s in individual (or subgroup)
financial statements ............................................................................ 1527
12.2.3
Acquisitions by subsidiaries and determining the level at
which the group tests goodwill for impairment ........................... 1528
12.3 Group reorganisations and the carrying value of investments in
subsidiaries ........................................................................................................... 1529
12.4 Investments in subsidiaries, associates and joint ventures ......................... 1530
12.4.1
Fair value less costs of disposal (FVLCD) for investments
in subsidiaries, associates and joint ventures ................................. 1531
12.4.2 VIU for investments in subsidiaries, associates and joint
ventures ................................................................................................. 1531
12.4.2.A
/>
VIU of investments in subsidiaries, associates
and joint ventures using dividend discount
models .............................................................................. 1532
12.4.2.B
VIU of investments in subsidiaries, associates
and joint ventures based on cash flows
generated by underlying assets ................................... 1533
12.4.3
Equity accounted investment and indicators of
impairment ........................................................................................... 1533
12.4.4 Equity accounted investments and long term loans .................... 1534
12.4.5
Equity accounted investments and CGUs ..................................... 1534
12.4.6 Equity accounted investments and testing goodwill for
impairment ........................................................................................... 1535
13 IFRS 16 IMPAIRMENT CONSIDERATION ................................................... 1536
13.1 When to test right-of-use assets for impairment ......................................... 1536
13.2 Treatment of lease liabilities ............................................................................ 1536
13.3 Lease
payments
during the lease term ........................................................... 1536
13.4 Lease payments beyond the current lease term ........................................... 1537
13.5 Leased corporate assets ..................................................................................... 1538
13.6 Transition
methods
............................................................................................
1538
14 DISCLOSURES REQUIRED BY IAS 36 .......................................................... 1538
14.1 Introduction ......................................................................................................... 1538
14.2 IAS 36 disclosures ............................................................................................... 1538
14.2.1
Disclosures required for impairment losses or reversals ............ 1538
14.2.2 Material
impairments
.........................................................................
1539
Impairment of fixed assets and goodwill 1425
14.3 Annual impairment disclosures required for goodwill and
International GAAP® 2019: Generally Accepted Accounting Practice under International Financial Reporting Standards Page 280
