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Later in these slides value in use is an internal

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later in these slides°Value in use is an internal determination (vs. fair valuewhich is an external determination)°Value in use is most commonly calculated by thepresent value of expected cash flows from the asset°It may consider factors that external users would not33MGT 224 Winter 2019 Copyright TPCI 2019
12IAS 36 - PPE impairment°If impairment is confirmed (i.e. carrying value isgreater than the recoverable amount) the impairmentamount is recorded in net income (not OCI)°Amortization is adjusted accordingly on a prospectivebasis°Useful life or amortization may change as a result of theimpairment testbut may not be done as a substitute forimpairment°Impairments may bereversedif conditions changebut only up to where the carrying amount would behad the initial impairment not been recorded34MGT 224 Winter 2019 Copyright TPCI 2019IAS 36 - PPE impairment°If necessary, impairment may be assessed on a cashgenerating unit (CGU) which is defined as the smallestidentifiable group of assets that generates cash inflowsthat are independent of the cash inflows from otherasset groups°Includes assets only and may include goodwillif sothen subject to an annual impairment test or more ifthere are indicators35MGT 224 Winter 2019 Copyright TPCI 2019Coverage°Introduction and overview°IFRSProvisions and contingencies°ASPEContingencies°IFRSPPE Impairment°ASPEPPE Impairment°IFRSFair Value determination°ASPEFair Value determination°Quality of Earnings°Case study36MGT 224 Winter 2019 Copyright TPCI 2019
13S. 3063 - PPE impairmentS. 3063 (covers PPE and limited life intangibles)°If there is an indication of impairment for PPE then animpairment test must be performed°The first step is to perform a recoverability testwhereundiscountedcash flows for use and eventualdisposal are compared to the carrying amount°If the undiscounted cash flows are less than thecarrying amount the asset is considered impaired°It is then written down to fair value37MGT 224 Winter 2019 Copyright TPCI 2019S. 3063 - PPE impairment°Impairment may be applied to an asset group which isdefined as the lowest level of assetsand liabilitiesthatgenerates cash inflows that are independent of the cashinflows from other asset groups°May include liabilities such as mortgage on a buildingwhere the only source of income to pay the mortgageis the building itselfif there are other sources of cashflows to pay the mortgageit would not be included38MGT 224 Winter 2019 Copyright TPCI 2019S. 3063 - PPE impairment°There is nohigher ofrule in ASPE like there is in IFRS°Fair value is discussed in the appendix of S. 3063 (see laterslide on fair value for ASPE)°Amortization is adjusted accordingly on a prospective basis°Useful life or amortization may change as a result of theimpairment testbut may not be done as a substitute forimpairment°Impairmentsmay not be reversedfor PPE under ASPEDiscussion question:°What impairments are eligible for reversal under ASPE (ifany)?

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Term
Winter
Professor
N/A
Tags
Balance Sheet, Generally Accepted Accounting Principles

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