IAS & IFRS by ACCAReloaded

ACCA – IAS & IFRS for 2013 December
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Summary IAS & IFRS

Financial-Corporate Reporting

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IAS 1 – Presentation of financial statements
• Provides formats for classification and presentation of financial information
• Identifies components of financial statements
• Note items of OCI must now be classified as either items that may be reclassified to profit or
loss in future periods, or those items which will not be reclassified in future periods

• Financial statements comprise:-
- Statement of financial position
- Statement of Profit or Loss
- Statement of Profit or Loss and Other Comprehensive Income
- statement of changes in equity

- statement of cash flows
- notes to the financial statements including a note of accounting policies
- certain elements of the report of the executives

Key points summary :
• IAS 1 prescribes the basis for presentation of general purpose financial statements.
• A complete set of financial statements includes four statements and notes including a summary of
accounting policies.
• Fair presentation is presumed by application of IFRSs, with additional disclosure (if necessary).
• Inappropriate accounting policies are not rectified by disclosure.
• Going concern is presumed. Significant uncertainties must be disclosed.
• Accrual basis is required (except for cash flow information).
• Consistency must be retained unless a change is justified (must disclose).
• Material items must be presented separately. Dissimilar items may be aggregated (if individually
immaterial).
• Assets and liabilities, and income and expenses may not be offset unless required or permitted by an
IFRS.
• Comparative information is required unless another Standard requires otherwise.
Statement of financial position must normally be classified (current vs non-current). Note disclosure
must separate longer-term amounts.
• All assets/liabilities other than current assets/liabilities are non-current.
• Minimum items are specified for the financial statements. Additional line items may be needed for
fair presentation.
• “Profit or loss” describes the bottom line of the income statement.
• All items of income/expense recognized in a period must be included in profit or loss (unless am IFRS
requires otherwise).
• Other comprehensive income includes changes in unrealized gains and losses (e.g. on revaluation).
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• Comprehensive income may be presented as one or two statements.
• Allocations to non-controlling interests and owners must be shown.
• No item may be presented as “extraordinary item” but material items may be disclosed separately.
• A separate statement of changes in equity must include effects of retrospective application and
dividends recognized as distributions.




















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IAS 2 - Inventories
• Valued at lower of cost and fair value less selling costs (i.e. NRV) for each separate item or
product
• Include all costs of getting item or product to current location and condition

Key Points :
• Value at lower of cost and net realizable value (NRV).
• NRV is selling price less cost to complete and sell.
• Cost includes all costs to bring inventories to their present condition location.
• If specific cost is not determinable, use FIFO or weighted average.
• Cost of inventory is recognized as an expense in the period in which the related revenue is
recognized.
• Any write-down is charged to expense. Any reversal in a later period is credited to income by
reducing that period’s cost of goods sold.
Required disclosures include:

• accounting policy;
• carrying amount;
− by category;
− at fair value;
− pledged as security for liabilities;
• amount of any reversal of a write-down;
• cost charged to expense for the period.

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IAS 7 – Statement of cash flows
• Standard format – choice between direct or indirect method – indirect normally used
• Three standard headings = operating, investing and financing – within standard heading,
can be in any order
• Normally begin operating activities with profit before tax and adjust for non-cash items

Key points summary :
• The statement of cash flows is a required financial statement.
• Cash equivalents are short-term, highly liquid investments subject to insignificant risk of changes in
value.
• Cash flows are classified into operating, investing, and financial activities.
• Operating: May be presented using either the direct or indirect methods.
- Direct method shows receipts from customers and payments to suppliers, etc.
- Indirect method adjusts accrual basis profit or loss for major non-cash items.
• Investing: acquisition or sale of property, plant and equipment.
• Financing: issue/redemption of equity, debentures, etc.

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IAS 8 – Accounting policies, changes in accounting estimates and errors
• Accounting policies should be appropriate and relevant, be consistently applied and be
disclosed
• Changes in estimates are taken to SOCI – e.g. change in depreciation method or revised
estimate of NRV
• Changes in accounting policy and fundamental errors should be accounted for as a Prior
Period Adjustment to re-state the opening position and comparative information

Key points summary :

• Changes in accounting policies are not changes in estimates.
• Changes in accounting estimates are not corrections of errors.
• A change in policy may be required by a Standard or voluntary.

• A change in estimate is accounted for prospectively.
• Changes in accounting policy are accounted for retrospectively unless a new/revised standard
specifies otherwise (in transitional provisions).
• The correction of prior period errors is accounted for retrospectively.
• Retrospective application means:
- adjusting opening balances in equity (e.g. retained earnings) for the earliest prior period
presented; and restating comparative amounts.






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IAS 10 – Events after the reporting period
• Definition – those events between SOFP date and date of approval of financial statements
• Adjusting events – those which provide additional evidence of the situation existing at the
SOFP date e.g. insolvency of major debtor notified shortly after the reporting date
• Non-adjusting events – those which do not provide evidence of the situation at the SOFP
date e.g. Share issue after the reporting date. Disclose only, but may become adjusting
even if going concern basis threatened.

Key points summary:

• Financial statements are adjusted for adjusting events (that provide further evidence of conditions
existing at the end of the reporting period).
• The basis of preparation of financial statements is changed if events indicate that the going concern
assumption is no longer appropriate.
• Non-adjusting events (events or conditions that arose after the end of the period) are disclosed if of
such importance that non-disclosure would affect the ability of users to make decisions. Disclose:
- nature of the event; and
- financial effect (or state that this cannot be estimated).
• Dividends declared after the reporting period is not a liability at the end of the reporting period
(therefore disclose as a non-adjusting event).
• The date when the financial statements are authorized for issue (who authorized and who can
amend subsequently) must be disclosed.






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IAS 11 - Construction contracts
• This is not relevant for paper P2
• Long-term defined as contract straddling two or more accounting periods

• Recognize foreseeable losses – prudent
• Recognize element of attributable profit – matching

Key points summary :
• A construction contract is a contract for the construction assets.
• A contract for two or more assets, should be accounted for:
- separately if certain criteria are met;
- as a single contract if negotiated together and work is inter-related.
• Revenue includes amounts initially agreed, for alternations, claims and incentive payments.
• Costs include specific costs, costs attributable to the contracting activity and other costs chargeable
under the terms of the contract.
• If the outcome can be estimated reliably, revenue and costs are recognized in proportion to the
stage of completion (“percentage of completion”).
• If the outcome cannot be estimated reliably, no profit is recognized. Costs are expensed as incurred
and revenue is recognized to the extent that they are expected to be recoverable.
• Stage of completion can be determined on costs, work performed or a physical basis.
• An expected loss is recognized as an expense as soon as it is probable.
• Gross amount due from/to customers is presented as an asset/liability.







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IAS 12 – Income Taxes
• Tax on company income charge in SOCI and recognize as a liability
• Deferred tax based upon full provision at reporting date:
- Permanent differences ignored
- Temporary differences in accounting and tax treatment accounted for, e.g.
- Depreciation charge and tax allowances on PPE
- Share options annual expense and allowed for tax when exercised
- Defined benefit pension plans annual charge and contributions allowed for tax
- Need to consider recoverability of deferred tax assets – asset ceiling limit
- Note 2011 revision re investment property measured at fair value

Key points :
• Current tax (for current and prior periods) is a liability to the extent that it has not yet been settled,
and an asset to the extent that amounts paid exceeds the amount due.
• The benefit of a tax loss which can be carried back to recover current tax of a prior period should be
recognized as an asset.
• Current tax assets and liabilities are measured using the rates/laws that have been enacted or
substantively enacted by the reporting date.
• Deferred tax liabilities should be recognized for all taxable temporary differences. Exceptions are
liabilities arising from initial recognition of:
- goodwill;
- an asset/liability in a transaction which is not a business combination and does not affect
accounting or taxable profit.
• A deferred tax asset should be recognized for deductible temporary differences to the extent that it
is probable that taxable profit will be available against which they can be utilized.
• A deferred tax asset is recognized for unused tax losses/credits carried forward to the extent that
sufficient future taxable profits are probable.
• Deferred tax assets and liabilities are measured at tax rates expected to apply (enacted or
substantively enacted by the end of the reporting period).
• Deferred tax assets and liabilities are not discounted.

• Current and deferred tax is recognized in profit or loss except to the extent
that the tax arises from:
• transactions recognized in other comprehensive income or directly in equity;
• a business combination.
• Current tax assets and liabilities should only be offset if there is a legal right to offset and intention
to settle on a net basis. Similarly for deferred tax where levied by the same tax authority.
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IAS 16 – Property, plant & equipment

• Initial measurement – cost directly attributable to bringing the asset into working condition;
now compulsory to capitalize finance costs.
• Capitalize subsequent expenditure which enhances economic benefits of the asset.
• May be revalued – take revaluation to revaluation reserve; continue to depreciate asset
over remaining expected useful life. Disclose name, date and qualifications of valuer.
• Commence depreciation when asset available for use and charge to reflect economic
benefits consumed during the period
• May be possible not to charge depreciation if it is immaterial due to very long expected
useful life of asset and/or high residual values. If this is the case, asset to be maintained to a
high standard and is unlikely to suffer from economic or technical obsolescence.
• Refer also to IAS 36 – impairment of assets.

Key points summary:
• An item of property, plant and equipment is recognized when:
- it is probable that future economic benefits will flow from it; and
- its cost can be measured reliably.
• Initial measurement is at cost.
• Subsequently, use:

- depreciated (amortized) cost – “cost model”;
- up-to-date fair value – “revaluation model”.
• Long-lived assets (except land) are depreciated on a systematic basis over their useful lives:
- base is cost less estimated residual value (or revalued amount);
- method should reflect the consumption of economic benefits;
- ‰ useful life should be reviewed annually (and any change reflected in the current period and
prospectively).
• Significant costs to be incurred at the end of an asset’s useful life are reflected by:
- recognizing as a cost element (if IAS 37 liability criteria met); or
- reducing the estimated residual value.
- In either case the amount is effectively expensed over the life of the asset.
• Revaluations should be made with sufficient regularity.
• The entire class to which a revalued asset belongs must be revalued.
• Revaluation gains are recognized in other comprehensive income and accumulated in equity (unless
reversing a previous charge to profit or loss).
• Decreases in valuation are charged to profit or loss (unless reversing a revaluation surplus).
• When a revalued asset is sold/disposed of, any remaining revaluation surplus is transferred directly
to retained earnings (not through profit or loss).
• Gain/loss on retirement/disposal is calculated by reference to the carrying amount.
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• Required disclosures include:
- Reconciliation of movements;
- Items pledged as security;
- Capital commitments;

- If assets are revalued, historical cost amounts;
- Change in revaluation surplus.
















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IAS 17 - Leases
• Operating lease – any lease not a finance lease – hire charges to IS on straight-line basis

• Finance lease:
- substantially all of economic useful life of asset and transfer of risks and rewards to less
– capitalize asset and liability at FV
- depreciation charge and finance cost charged to SOC
• Sale and leaseback transactions:
- Operating leaseback – derecognize asset and recognize gain or loss on disposal

• Finance leaseback:
- defer gain or loss on disposal and amortize over lease term
- recognize finance lease asset and finance lease obligation
- account for annual depreciation charge and finance costs in IS

Key point summary:
• A finance lease transfers substantially all the risks and rewards of ownership. All other leases are
operating leases. Classification is at inception of the lease.
• There are many indicators of a finance lease (e.g. transfer of ownership at the end of the lease term).
• Land and buildings elements of a lease are normally treated separately. (Minimum lease payments
are allocated in proportion to fair values.) Land is normally “operating”. Separate measurement is
not required for investment property under the fair value model (IAS 40).
Principles of lessee accounting
• A finance lease is recognized as an asset and a liability at the lower of the asset’s fair value and the
present value of the minimum lease payments.
• Finance lease payments are apportioned between a finance charge and repayment of the principal
(outstanding liability).
• Depreciation policy for assets held under finance leases should be consistent with other owned
assets.
• Unless there is reasonable certainty of ownership at the end of the lease the depreciation period is
the shorter of the lease term and useful life.
• Operating lease payments are recognized in profit and loss on a straight-line basis (or a systematic
basis representing the pattern of consumption).
Sale and Leaseback Transactions
• If the result is a finance lease, any excess of proceeds over the carrying amount is deferred and
amortized over the lease term.
• If the result is an operating lease treatment of any gain or loss depends on whether or not the
transactions (“sale” and “leaseback”) are at fair value.
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IAS 18 – Revenue
• Revenue should be recognized in the period to which it relates
• When has revenue been earned?
- When risks and rewards have been transferred
- When work or service has been substantially delivered or performed
- Upon identification of a critical point in a commercial relationship

Key points summary :

• Revenue is the gross inflow of economic benefits arising from ordinary operating activities.
• Revenue is measured at the fair value of consideration received or receivable.
• Discounting is appropriate where the fair value of future consideration is less than the nominal
value.
• Recognition means incorporating an item in income when it meets the “probability” and “reasonable
measurability” criteria.
• Revenue from the sale of goods is recognized when all of the specified criteria are met. As well as
The Framework criteria these include transfer of risks and rewards and effective control.
• The usual point of revenue recognition is on sale/delivery of goods.
• For services rendered the stage of completion must be measurable.
• Revenue is recognized at the earliest point from which profits arising from the transaction are
recognized.

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IAS 19 (revised) – Employee benefits
• Not in F7 Financial Reporting syllabus
• Contentious due to application of definition of liability per Framework
• Substantial revision in 2011
• Defined contribution scheme recognizes annual cost of pension contribution
• Defined benefit scheme:
- Net interest component charged to profit or loss in the year
- apply discount rate to net obligation at start of year
- includes increase in plan assets due to passage of time
- service cost component charged to profit or loss in the year
- Current year service cost
- Past service costs recognized in full when announced
- Gains and losses on curtailments and settlements part of service cost
• Re measurement component taken to other comprehensive income in the year
• actuarial gains and losses on plan assets and plan obligation
• income and gains/losses on plan assets, other than included as part of net interest component
• Short-term employee benefits – wages and salaries, benefits-in-kind etc on accruals basis
• Termination benefits – recognize when there is a commitment to make such payments
• Other long-term employee benefits – account for in similar way to defined benefit plans

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IAS 20 – Accounting for government grants
• Match revenue grants against expense to which they relate
• Match capital grants with assets to which they relate – two possibilities
• account for gross cost of asset and deferred income on SOFP
• preferred treatment as it provides more information
• account only for net cost of asset on SOFP

Key points summary :

• IAS 20 applies to all government grants (excluding grants covered by IAS 41) and all other forms of
government assistance including loans at below-market rate of interest (but excluding income tax
benefits).
• Grants are recognition when there is reasonable assurance that:
- the entity will comply with any conditions attached to them; and
- the grant will be received.
• Recognize in profit and loss on a systematic basic to match with related costs.
• A grant for costs already incurred or with no future related costs is recognized as income in the

period receivable.
• Non-monetary grants (e.g. land) are usually accounted for at fair value
(although nominal amount is permitted).
• An asset-related grant may be presented:
- as deferred income; or
- by deducting it from the asset’s carrying amount.
• Other grants may be reported separately, or as “other income” or deducted from the related
expense. A grant which becomes repayable is treated as a change in accounting estimate.
• Assistance which cannot reasonably be valued or distinguished from normal trading transactions is
excluded from the definition of government grants.
• Disclosure includes accounting policy (including method of presentation), grants recognized,
unfulfilled conditions and contingencies and forms of assistance from which the entity has directly
benefited.









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IAS 21 – The effects of changes in foreign exchange rates
• Not in F7 Financial Reporting syllabus.
• Use exchange rate ruling at date of transaction to record in FS

• Non-monetary items (e.g. NCA, inventory) are not restated
• Monetary items are re-translated at SOFP rate with gain or loss to P/L

• Group FS:
- Calculate goodwill in functional currency with annual retranslation at closing rate
- Translate SOFP at closing rate
- Translate SOCI at average rate
- Exchange gains and losses on retranslation of a foreign operation:
- Net assets (opening net assets plus profit for year)
- Goodwill
- Total exchange gain/loss on retranslation taken to OCI for the year
- Group share of exchange gain/loss on retranslation included in equity on SOFP













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IAS 23 – Borrowing costs
• Compulsory to capitalize borrowing cost during construction of a non-current asset
• Part of convergence between IAS/US GAAP

Key points summary :

• Compliance with IAS 23 is not mandatory for:
- qualifying assets measured at fair value (e.g. IAS 41);
- “mass produced” inventories.
• Borrowing costs include:
- interest expense calculated by effective interest method (IAS 39);
- finance charges (IAS 17); and
- exchange differences on foreign currency borrowings.
• A “qualifying asset” takes a substantial amount of time to be ready for its intended use or sale.
Includes “made-to-order” inventories.
• Borrowing costs directly attributable to a qualifying asset must be capitalized. Other borrowing costs
are expensed when incurred.
• For specific funds, costs eligible for capitalization is actual costs inc less any income from
temporary investment.
• For general funds, apply a capitalization rate (weighted average borrowing cost) to expenditures.


• Capitalization:
- commences when expenditure, borrowing and activities are in progress;
- is suspended when active development is interrupted;
- ceases when substantially all activities are complete.

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IAS 24 – Related party disclosures
• Not in F7 Financial Reporting syllabus
• Definition of a related party
• Entities under common control or influence
• Directors
• key staff able to control or influence transactions and/or their terms
• employee defined benefits scheme
• persons connected with any of the above
• Must disclose existence of related parties, plus transactions and terms
IAS 27 (revised) – Separate financial statements
• Applies if consolidated financial statement not prepared – disclose why
• Disclose basis upon which subsidiaries, associates and joint arrangements have been
accounted for in these financial statements

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IAS 28 (revised) – Investment in associates and joint ventures
• Associate - able to exert significant influence, but not control, another entity
• Joint venture – unanimous decision-making and entitled to share of net assets from JV entity
• Indicated by 20%-50% of equity shares in another entity
• Consider if another entity owned (say) 70% - they would have outright control
• IFRS 10 recognizes that may still have influence, even if another has control
• Equity accounting in group FS:
- share of profit after tax for the year in SOCI
- cost plus share of profits/losses since gaining influence

Key points summary:
• Holding 20% or more of the voting power (directly or indirectly) indicates significant influence unless
it can be clearly demonstrated otherwise.
• Significant influence is usually evidenced (e.g. board representation).
• Investments in associates are accounted for in consolidated financial statements using the equity
method (i.e. initially at cost and subsequently adjusted for share of profit or loss).
• Equity method investments are classified as non-current assets.
• Dividends received reduce carrying amount.
• On acquisition, any difference between cost and share of net fair value of identifiable assets of the
associate is accounted for like goodwill.
• The investor’s share of post-acquisition profits or losses is adjusted (e.g. for additional depreciation
on fair values exceeding carrying amounts).

• If impairment is indicated, the carrying amount is tested for impairment as a single asset (i.e.
goodwill is not tested separately).
• Use of the equity method ceases from the date when significant influence ceases. The carrying
amount at that date is the new cost.
• The investor’s share in unrealized profits and losses arising on inter-company transactions should be
eliminated.
• Unrealized losses should not be eliminated to the extent that the transaction provides evidence of an
impairment of the asset transferred.
• The associate’s financial statements should be adjusted to reflect any differences from the investor’s
accounting policies.
• The investor’s share of changes recognized directly in the associate’s other comprehensive income
are recognized in other comprehensive income


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IAS 32 - Financial Instruments – Presentation
IAS 39 - Financial Instruments – Recognition and Measurement
IFRS 7 – Financial Instruments – Disclosures
IFRS 9 - Financial Instruments
• Use definitions of asset and liability per Framework to classify financial instruments
according to commercial substance
• Returns on financial instruments in SOCI to be classified on consistent basis as financial
instrument on SOFP
• Split compound or hybrid instruments into liability and equity elements at inception.
• Classification of financial assets per IFRS 9:
- Fair value through PorL (FVTPorL) is normal default classification for all financial assets
- Includes derivatives for speculation and financial assets held for trading
- Fair value through other comprehensive income (FVTOCI)

- can only apply to equity instruments only upon initial recognition
- any impairment losses part of OCI movement in year
- no recycling of impairment losses or of gains/loss on subsequent disposal
• Financial assets measured at amortized cost – must pass two tests:
- business model test – asset held to collect contractual cash flows
- contractual cash flows characteristics test – cash flows consist solely of payment of interest
and capital.
- if either test failed, must be measured as FVTPorL
- if at amortized cost, subject to annual impairment review
• Financial liabilities classification of financial liabilities per IFRS 9 as either:
- FVTPorL (like financial assets), includes derivatives for speculation and financial liabilities held
for trading
- Other financial liabilities at amortized cost (if not at FVTPorL)
- Note – can still opt to measure liabilities at FVTPorL to eliminate or reduce financial
mismatch
• Hedging – currently still dealt with by IAS 39:
- Must be formally documented at inception
- Must be regularly reviewed to ensure still effective
- FV hedge – take changes in FV of hedged item and hedge instrument (i.e. derivative) to P/L
- Cash flow hedge – take changes in FV of hedge instrument (i.e. derivative) to OCI.
Key points summary:
• Accounting for financial instruments is covered by IAS 32, IAS 39, IFRS 7 and IFRS 9.
• Instruments must be distinguished between equity and liabilities. Convertible instruments that are
a mix of equity and liability must be split; the liability is the present value of future cash flows and
the equity element the balancing figure.
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• Financial assets are either measured at fair value or amortized cost.
• Any changes in fair value of a financial asset are taken to profit or loss or other comprehensive
income (according to initial classification).
• Financial assets and liabilities at amortized cost are measured using the instruments effective
interest rate based on market rates.
• Financial assets at amortized cost are tested for impairment if there is objective evidence that
impairment has occurred.
• Disclosure requirements are very extensive and related mostly to related risks.


















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IAS 33 – Earnings per share
• EPS = Profit after tax, NCI and pref dividends
Weighted average no. of equity shares
• Consider:
- Market issue at full price – calculate weighted ave no of equity shares in issue
- Bonus issue – free shares – treat as if had always been in issue and restate comparative
- Rights issue – treat partly as bonus issue and partly as issue at full market price
- Diluted EPS – convertible debt and share option schemes

Key points summary :
• IAS 33 applies to entities whose securities are or will be publicly traded. Other entities that choose to
present EPS information must also comply.
• If both parent and consolidated statements are presented in a single report, EPS is required only for
the consolidated statements.
• Basic and diluted EPS must be presented, with equal prominence for all periods, in the statement of
profit or loss, even if negative. For discontinued operations as well as continuing.
• If components of profit or loss are presented in a separate income statement, EPS is presented only
in that separate statement.
• Basic EPS is calculated as:
profit or loss attributable to ordinary shareholders
weighted average number of ordinary shares during the period.
• Diluted EPS is calculated by adjusting earnings and number of shares for the effects of dilutive
options and other dilutive potential ordinary shares. Anti-dilutive effects are ignored.
• Convertible securities: adjust for the after-tax effects of dividends and interest charged relating to
dilutive potential ordinary shares. Include all shares that would be issued on conversion.
• Assume the exercise of outstanding dilutive options and warrants and that proceeds are used to
repurchase ordinary shares at the average market price for the period. Any difference between the
numbers of ordinary shares assumed issued on exercise and the number repurchased is treated as an
issue of ordinary shares for no consideration.

• Disclosures required:
- profit or loss used in calculating basic and diluted EPS with a reconciliation to profit or loss
attributable to the parent;
- weighted average number of ordinary shares used in calculations;
- potentially dilutive instruments excluded from the calculation because they are anti-dilutive for the
period(s) presented.


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IAS 34 – Interim financial reporting
• Not in F7 Financial Reporting syllabus.
• May be required by local law or listing regulations
• Include condensed SOFP with comparative dated at end of previous financial year-end.
• Include condensed SOCI, plus cumulative for year to date, plus comparatives
• Include condensed SOCIE plus statement of cash flows, plus comparatives for each
statement
• Include selected explanatory notes – including any change in accounting policy or significant
adjustments from interim to annual financial statements

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IAS 36 – Impairment of assets
• Definition – reduction in recoverable amount below carrying value in the FS
• Normally charge to PorL. If asset previously revalued, first set impairment against
revaluation reserve for that asset, with any residual amount taken to PorL.
• May apply to individual asset, collection of assets or income(cash) generating unit
• If IGU includes goodwill, then gross up net or proportionate goodwill to get total CV of IGU, then
apply impairment test – any impairment is then first allocated against goodwill.
• If there are several IGUs within a business (e.g. subsidiary), then two-stage impairment test :
- First on each individual IGU
- Then on business as a whole
• Cannot write down an individual asset to an amount lower than its recoverable amount.
• Normally only expected to perform impairment review if there is indication that asset(s)
may be impaired
• Compulsory impairment review required annually:
- IFRS 3 – goodwill on acquisition
- Financial assets
Key points summary :
• Indications of impairment (external and internal) must be assessed annually. If indicated,

recoverable amount must be estimated.
• Impairment testing must be measured annually (even if no indication) for intangible assets
(indefinite life, not available for use, goodwill) and CGUs to which goodwill has been allocated.
• Accounting estimates (useful life, depreciation method and/or residual value) may also need to be
reviewed and adjusted.
• If either fair value less costs of disposal or value in use exceed carrying amount there is no
impairment.
• If fair value less costs of disposal is indeterminable, recoverable amount is value in use.
• For assets to be disposed recoverable amount is fair value less costs of disposal. If binding sale
agreement, use price agreement less costs.
• If an active market exists, use current bid price or most recent transaction. If no active market,
then best estimate.
• Value in use reflects amount/timing of cash flows and time value of money (using pre-tax discount
rate).
• Cash flow projections based on supportable assumptions and the asset’s current condition
exclude cash flows from financing activities or taxation.
• An impairment loss must be recognized when recoverable amount is below carrying amount:
- expense in profit or loss (any excess over revaluation surplus);
- adjust depreciation for future periods.
• If recoverable amount for an individual asset cannot be estimated, determine for its cash-
generating unit (CGU).

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• In allocating goodwill to CGUs, each CGU must:
- represent the lowest level at which goodwill is monitored;
- and be not larger than an operating segment (IFRS 8).

• An impairment loss reduces the carrying amount of a CGU’s assets.
• Allocation is firstly to goodwill then other assets (on pro-rata basis).
• Carrying amount cannot be less than the higher of fair value less costs of disposal, value in use,
and zero.
• Assess annually if an impairment loss may have decreased. Reversal of an impairment loss is
restricted (to what carrying amount would have been).
• Reversal of an impairment loss for goodwill is prohibited.