IAS 36: Impairment of Assets and Accounting Estimates

Indefinite Useful Life Assessment

• If the indefinite useful life assessment is no longer applicable, estimate the remaining useful life and account for this change as a change in an accounting estimate (IAS 8)

Impairment

• Use the principles of IAS 36 Impairment of Assets
• Test for impairment at year-end if there is an indication of impairment
• Calculate the recoverable amount and compare it to the carrying amount
• The recoverable amount is the higher of: fair value less costs of disposal; and value in use
• Accounting treatment of an impairment loss on an Intangible Asset = same as IAS 36

Annual Impairment Test

• Perform an impairment test annually in the following circumstances:
  • Intangible Assets with an indefinite useful life
  • Internally generated Intangible Assets not yet available for use (development costs)

Subsequent Measurement

• Amortisation and Impairment Testing
• Intangible Assets not yet available for use: no amortisation, impairment test only
• Intangible Assets available for use:
  • Finite useful life: amortisation, no impairment test
  • Indefinite useful life: impairment test, no amortisation

Impairment Reversals

• Use the principles of IAS 36 Impairment of Assets
• Reverse a subsequent increase in recoverable amount when:
  • The circumstances and events resulting in the original impairment no longer exist
  • There is persuasive evidence that the new circumstances and events are likely to continue in the foreseeable future

Amortisation Methods

• Straight-line
• Diminishing balance (reducing balance)
• Units-of-production
• If the pattern cannot be determined reliably, use the straight-line method

Amortisation

• Amortisation = expense
• Debit: Amortisation (SPLOCI)
• Credit: Accumulated amortisation (SFP)
• Start amortisation when the Intangible Asset is available for use as intended by management
• Stop amortisation at the earlier of:
  • Date of derecognition
  • Date when the Intangible Asset is fully amortised

Residual Value

• The residual value of an Intangible Asset with a finite useful life is deemed to be Rnil, unless:
  • There is a commitment by a third party to purchase the Intangible Asset at the end of its useful life
  • There is an active market for the Intangible Asset which will probably still exist at the end of the Intangible Asset's useful life

Changes in Estimates

• Reassess annually for Intangible Assets with a finite useful life:
  • Useful life
  • Amortisation method
  • Residual value
• Changes in accounting estimates (IAS 8) are applied prospectively (present and future) and not retrospectively (past)
• Disclosure requirements in terms of IAS 8:
  • Nature of change in estimate
  • Amount of the change in estimate
  • The effect/impact of the change in estimate on the current and future periods