CCI Online Learning
50% OFF in CA/CS/CMA Subjects
     
CIBIL

Share on Facebook

Share on Twitter

Share on LinkedIn

Share on Email

Share More

Impairment of intangible Asset


Shubham (student)     27 September 2020

Shubham
student 
 1 likes  73 points

| My Other Post

Patent acquired for 153000 having useful life of 10 years At the end of 5th year a health hazard was identified and its fair value was determined at 62370 with future cash flows equal to 72000. Due to which it was impaired by 14130 i.e 76500-62370
At end of 6th year hazard was solved and fair value was determined at 48600 with furure cash flows of 58500. Is there any impairment loss/(recovery) to be recorded at end of 6th year and what is adjusted carrying value of asset at the end of 6th year

avater

yasaswi gomes   28 September 2020

yasaswi gomes

 104 likes  1812 points

View Profile | My Other Post

I’ll take into view that the patents acquired as purchased and not from business combinations. 

Impairment loss is recognised in the same year when it occurs.

In the next year, if there is a recovery of carrying amount of the asset, you can reverse impairment charges. 

Here you gave recoverable amounts of FVLCD & VIU, but not the carrying amounts. 

The reversal is recognised in P&L unless Asset is using revaluation model instead of cost model. 

Finally, establish there is no impairment in the sixth year, calculate NBV after adjusting for amortisation, when there is no indication of impairment this year ie., carrying value is lower than its recoverable amount, reverse previous impairment charges. 

IAS 36 & IndAS 36 & AS 28

avater

Shubham (student)     28 September 2020

Shubham
student 
 1 likes  73 points

View Profile | My Other Post

Thanks for response but these are the only values given in the question. Can u tell me the value to be reversed and asset carrying value.

avater

yasaswi gomes   28 September 2020

yasaswi gomes

 104 likes  1812 points

View Profile | My Other Post

Sorry, wish I could do the calculations but I’m on my mobile device as my laptop has maintenance issues currently. I have a link here with an example and very easy to understand. From fifth year NBV, subtract impairment losses& depreciation. In the 6 year NBV, subtract depreciation at the rate specific to new revised amounts. Then calculate the NBV of Asset in sixth year at historical cost ie., without impairment loss.

NBV without impairment

-NBV with impairment

= Impairment reversal amount.

this should be addd back to the asset which is equal to the historical value of asset. 

https://library.croneri.co.uk/cch_uk/iast/ias36-example-200403

avater

Shubham (student)     28 September 2020

Shubham
student 
 1 likes  73 points

View Profile | My Other Post

Thankyou so much
Just one last query
Although fair value of asset at the end of 6th year is less than both its existing carrying value and carrying value at historical cost less depreciation then also we will reverse the impairment loss ?
Thankyou for solving the doubt

avater

yasaswi gomes   28 September 2020

yasaswi gomes

 104 likes  1812 points

View Profile | My Other Post

Carrying value is lesser than or equal to original carrying value+it should be lower than recoverable amount. 

There are conditions for how impairment loss is treated = differs for cost & revaluation model.

Then reversal

Asset dr.(Asset)

Impairment reversal Cr. (Income)

Recoverable amount= higher of FVLCD or VIU.

To make it easy, prepare two NBV schedules which includes  FVLCD & VIU. one with impairment and other without impairment, compare recoverable amounts for all years if data is available. 

avater

Shubham (student)     28 September 2020

Shubham
student 
 1 likes  73 points

View Profile | My Other Post

Carrying value of asset at end of 6th year without impairment loss is 61200
carrying value of asset at end of 6th year considering impairment loss is 49896
while fair value at the end of sixth year is 48600.
Now what to do in this scenario ?
do we need the reversal now?
what we should do?

avater

yasaswi gomes   28 September 2020

yasaswi gomes

 104 likes  1812 points

View Profile | My Other Post

The carrying amount is still higher than recoverable amount FVLCD indicating an impairment. What is the VIU and which is high? We don’t have to do reversal but calculate further impairment. So account for impairment loss this year as well because the FVLCD amount is the only amount given in the question and it must be higher. Then check for 7th year if impairment had reduced or not. I’m glad you got it right if you took depreciation rate for SLM method as 1/10= 10%

 

avater

Shubham (student)     28 September 2020

Shubham
student 
 1 likes  73 points

View Profile | My Other Post

I further impaired it with 1296(49896-48600) and recorded asset at 48600. Did i did it right ?

avater

yasaswi gomes   28 September 2020

yasaswi gomes

 104 likes  1812 points

View Profile | My Other Post

Sure, subtract amortisation along with it for this year. Mostly cost model is used in general terms. 


Leave a reply

Your are not logged in . Please login to post replies

Click here to Login / Register  




Popular Discussion


view more »



Trending Tags
GST Live Class    |    x