Basic concepts:

•Carrying amount: It is the net value at which the asset is included in the statement of financial position (the cost of the assets less accumulated depreciation and any impairment loss).

•Recoverable amount: It is measured as the higher of asset’s fair value less cost of disposal and value in use.

•Impairment: if the recoverable amount is less than asset’s carrying amount, it indicates that the asset is subject to impairment.

•Value in use: It is measured as the present value of estimated future cash flows (inflows minus outflows) generated by the asset.

There are some external and internal information that may indicate the asset impairment.

External evidence

√Significant changes in technology, market, legal or economy of the business in which the assets are employed;

√Increase in market interest rate or market rates of return on investments likely to affect the discount rate used in calculating the value in use;

√Carrying amount of the entity’s net assets are more than its market capitalization.

Internal evidence

√Evidence of obsolescence or physical damage, adverse changes in the use to which the asset is put or the asset’s economic performance.

No evidence

√Intangible asset with an indefinite useful life and goodwill acquired in a business combination must always be tested for impairment annually regardless of indications of impairment.

Accounting treatment of impairment loss

An impairment loss should also be recognized for a cash generating unit, if the recoverable amount for the cash generating unit is less than the carrying amount in the statement of financial position for all the assets in the unit. The following order should be notified when allocating the impairment loss.

Firstly, the impairment loss should be allocated to goodwill, then to all other assets on pro rata basis.

In allocating an impairment loss, the carrying amount of an asset should not be reduced below the highest of its fair value less cost of disposal, its value in use and zero.