Topic 209 - Impairment of non-financial assets

IAS 36 Impairment of Assets

IFRIC 10 Interim Financial Reporting and Impairment

209.1.1.1

IFRIC Agenda Decision - Impairment of investments in associates in separate financial statements

January 2013 - In the July 2012 meeting, the Interpretations Committee received an update on the issues that have been referred to the IASB and that have not yet been addressed. The Interpretations Committee asked the staff to update the analysis and perform further outreach on an issue about the impairment of investments in associates in separate financial statements. More specifically, the issue is whether, in its separate financial statements, an entity should apply the provisions of IAS 36 Impairment of Assets or IAS 39 Financial Instruments: Recognition and Measurement to test its investments in subsidiaries, joint ventures, and associates carried at cost for impairment.

The Interpretations Committee noted that according to paragraph 38 of IAS 27 Consolidated and Separate Financial Statements an entity, in its separate financial statements, shall account for investments in subsidiaries, joint ventures and associates either at cost or in accordance with IAS 39 (paragraph 10 of IAS 27 (2011) has superseded paragraph 38 of IAS 27 (2008)).

The Interpretations Committee also noted that according to paragraphs 4 and 5 of IAS 36 and paragraph 2(a) of IAS 39, investments in subsidiaries, joint ventures, and associates that are not accounted for in accordance with IAS 39 are within the scope of IAS 36 for impairment purposes. Consequently, in its separate financial statements, an entity should apply the provisions of IAS 36 to test for impairment its investments in subsidiaries, joint ventures, and associates that are carried at cost in accordance with paragraph 38(a) of IAS 27 (2008) or paragraph 10(a) of IAS 27 Separate Financial Statements (2011).

The Interpretations Committee concluded that in the light of the existing IFRS requirements an interpretation or an amendment to IFRSs was not necessary and consequently decided not to add this issue to its agenda.

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209.4.1.1

IFRIC Agenda Decision - Calculation of value in use

November 2010 - The Committee received a request for clarification on whether estimated future cash flows expected to arise from dividends, that are calculated using dividend discount models (DDMs), are an appropriate cash flow projection when determining the calculation of value in use of a cash generating unit (CGU) in accordance with paragraph 33 of IAS 36.

The Committee noted that paragraphs 30⁠–⁠57 and paragraphs 74⁠–⁠79 of IAS 36 provide guidance on the principles to be applied in calculating value in use of a CGU. The Committee observed that calculations using a DDM which values shares at the discounted value of future dividend payments, may be appropriate when calculating value in use of a single asset, for example when an entity applies IAS 36 in determining whether an investment is impaired in the separate financial statements of an entity. The Committee understands that some DDMs may focus on future cash flows that are expected to be available for distribution to shareholders, rather than future cash flows from dividends. Such a DDM could be used to calculate value in use of a CGU in consolidated financial statements, if it is consistent with the principles and requirements in IAS 36.

The Committee noted that the current principles in IAS 36 relating to the calculation of value in use of a CGU are sufficient and that any guidance that it could provide would be in the nature of application guidance. Consequently, the Committee decided not to add the issue to its agenda.

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209.8.1.1

IFRIC Agenda Decision - Identifying cash-generating units in the retail industry

March 2007 - The IFRIC was asked to develop an Interpretation on whether a cash‑generating unit (CGU) could combine more than one individual store location. The submitter developed possible considerations including shared infrastructures, marketing and pricing policies, and human resources.

The IFRIC noted that IAS 36 paragraph 6 (and supporting guidance in paragraph 68) requires identification of CGUs on the basis of independent cash inflows rather than independent net cash flows and so outflows such as shared infrastructure and marketing costs are not considered.

The IFRIC took the view that developing guidance beyond that already given in IAS 36 on whether cash inflows are largely independent would be more in the nature of application guidance and therefore decided not to add this item to its agenda.

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209.8.1.2

IFRIC Agenda Decision - Recoverable amount and carrying amount of a cash-generating unit

May 2016 - The Interpretations Committee received a request to clarify the application of paragraph 78 of IAS 36 Impairment of Assets. This paragraph sets out the requirements for considering recognised liabilities in determining the recoverable amount of a cash-generating unit (CGU) within the context of an impairment test for a CGU.

The submitter questioned the approach set out in paragraph 78 of IAS 36, which requires an entity to deduct the carrying amount of any recognised liabilities in determining both the CGU’s carrying amount and its value in use (VIU). The submitter asked whether an alternative approach should be required.

The Interpretations Committee observed that when an entity needs to consider a recognised liability to determine the recoverable amount of a CGU (which may occur if the disposal of a CGU would require the buyer to assume the liability), paragraph 78 of IAS 36 requires the entity to deduct the carrying amount of the recognised liability in determining both the CGU’s carrying amount and its VIU. This approach of determining both the CGU’s carrying amount and its VIU by deducting the same carrying amount of the recognised liability makes the comparison between the CGU’s carrying amount and the CGU’s recoverable amount meaningful.

The Interpretations Committee observed that the approach in paragraph 78 of IAS 36 for considering recognised liabilities provides a straightforward and cost-effective method to perform a meaningful comparison of the measures involved in an impairment test for a CGU.

In the light of the existing requirements in IFRS Standards, the Interpretations Committee determined that neither an Interpretation nor an amendment to a Standard was necessary. Consequently, the Interpretations Committee decided not to add this issue to its agenda.

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