Impairment of Long-Lived Assets
ASPE: 3063
Impairment of Long-Lived Assets
ASPE: 3063
Scope
Section 3063 applies to all long-term assets except for:
- goodwill and intangible assets with indefinite useful lives (see Goodwill and Intangible Assets, Section 3064);
- investments, including equity method accounted investments (see Investments, Section 3051);
- accrued benefit assets (see Employee Future Benefits, Section 3461);
- future income tax assets (see Income Taxes, Section 3465);
- financial assets, financial liabilities (see Financial Instruments, Section 3856)
Recognition and measurement
- An impairment loss shall be recognized when the carrying amount of a long-lived asset is not recoverable and exceeds its fair value.
- The carrying amount of a long-lived asset is not recoverable if the carrying amount exceeds the sum of the undiscounted cash flows expected to result from its use and eventual disposition
- If carrying value > undiscounted cash flows; Impairment loss = carrying value – fair value
When to test for recoverability
A long-lived asset shall be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.
Grouping assets
- For purposes of measuring the impairment loss, a long-lived asset should be grouped with other assets and liabilities to form an asset group at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities.
- An example of when a liability would be included in an asset group is a mortgage for which the building is the only source of cash flow to pay the liability
- Goodwill is included in the carrying amount of an asset group to be tested for impairment only if the asset group is or includes a reporting unit (see section 3064)
- An asset group could include assets (such as accounts receivable and inventory) not covered by this Section, as well as liabilities (such as accounts payable and long-term debt).
- With the exception of goodwill, the carrying amounts of these assets and liabilities are evaluated prior to testing the asset group for recoverability.
- For example, the allowance for doubtful accounts and impaired loans would be evaluated in accordance with Financial Instruments, Section 3856, and long-lived assets held for sale would be evaluated in accordance with Disposal Of Long-Lived Assets And Discontinued Operations, Section 3475.
- An impairment loss for an asset group reduces only the carrying amounts of long-lived assets held for use and not of any other assets or liabilities of the asset group
- The loss is allocated to the long-lived assets of the group on a pro rata basis using the relative carrying amounts of those assets.
- You cannot reduce an individual asset below its fair value (if determinable)
Factors that indicate impairment
- An asset’s market value has declined significantly more than expected
- A significant adverse change in the extent or manner in which it is being used or its physical condition
- A significant adverse change in legal factors or in the business climate that could affect its value
- Costs significantly in excess of the amount originally expected for its acquisition or construction
- A current-period operating or cash flow loss combined with a history of operating or cash flow losses, or a projection or forecast that demonstrates continuing losses associated with its use; or
- A current expectation that, more likely than not, it will be sold or otherwise disposed of significantly before the end of its previously estimated useful life
Reversal of Impairment Loss
An impairment loss shall not be reversed if the fair value subsequently increases.
Comparison to IFRS
- IAS 36 (impairment of assets) also deals with goodwill and intangibles with indefinite useful lives
- Under IFRS, we compare the recoverable amount to the carrying value, and if the carrying value exceeds the recoverable amount, we write down the asset the recoverable amount
- Under IFRS, impairment of goodwill is done differently (see section IAS 36)
- Grouping of assets
- Under ASPE, assets are grouped into “asset groups” for purposes of impairment
- Under IFRS, assets are tested individually, unless it doesn’t generate cash flows independent of other assets (then it gets grouped into a cash-generating unit)
- Under ASPE, an asset group can include liabilities
- Under IFRS, only assets can be grouped to CGU (no liabilities)
- Under IFRS, reversal of impairment loss is allowed (except for impairment loss on goodwill)
- Under IFRS, must test impairment annually and whenever events indicate for goodwill and unlimited life intangible assets (under ASPE, test only when events indicate)