Question

Beverly Hills Inc. has identified indicators of possible impairment on a depreciable asset and an

intangible asset.

Information on each of these is provided below:

Depreciable asset -

Building $560,000

Accumulated depreciation (300,000)

Carrying value $260,000

Undiscounted future cash flows from use of asset $270,000

Value in use 220,000

Fair value 250,000

Costs of disposal (12,000)

Indefinite Life Intangible Asset -

Carrying value $120,000

Fair value 80,000

Direct costs to dispose of the trademark (20,000)

Value in use 100,000

Required -

Prepare any impairment loss journal entries required under IFRS and under ASPE. (Note that for

ASPE, the first step is assumed met when dealing with an indefinite life intangible asset, i.e. just

like goodwill)

Answer 1

IFRS (IAS 36)	value	ASPE (ASPE 3063)	value
An impairment loss is recognized when the Carrying Amount exceeds the Recoverable Amount		Step 1) An impairment loss is recognized when the Carrying Value exceeds the undiscounted future cash flows
Carrying Amount:	X	Carry Value: Undiscounted Cash Flows from use: ONLY if X>A do we consider an impairment, and continue to Step 2.	X A
Less: Recoverable Amount* Recoverable amount is the higher of: - Fair Value less disposal cost - Value in Use (Discounted Cash Flows)	(Y)	Step 2) Calculate the Impairment amount:
Impairment Loss =	X-Y	Carrying Value:	X
		Less: Fair Value	(B)
		Impairment Loss =	X-B
Reversal is allowed		NO reversal allowed

Impairment of Indefinite intangible assets

ASPE 3064	IFRS
An intangible asset with an indefinite life is required to be tested for impairment whenever events or changes in circumstances indicate that its carrying amount may exceed its fair value.	IAS 36 requires annual testing for impairment. However, the standard provides some relief from this requirement. Where an entity meets specific criteria, the entity may use an asset’s most recent (preceding period’s) detailed calculation of its recoverable amount in the impairment test.
Testing for impairment of indefinite life intangible assets is a one step process - compare the carrying value with the fair value amount of the asset	IAS 36 uses a one-step impairment test - compare the recoverable amount of the asset with the carrying amount of the asset.
If the carrying value exceeds the fair value, an impairment loss is recorded for the excess amount	If the carrying value exceeds the recoverable amount, then write-down the carrying value to the recoverable amount.

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Main Answer-

Depreciable Asset- Building

IFRS

ASPE

Carrying Amount:	$260000	Carry Value:(X)-$260000 Undiscounted Cash Flows from use(A):-$270000 ONLY if X>A , we consider an impairment, and continue to Step 2.	X is not more than A
Less: Recoverable Amount* Recoverable amount is the higher of: - Fair Value less disposal cost-($250000-$12000)=$238000 - Value in Use (Discounted Cash Flows)-$220000	($238000)	Calculate the Impairment amount:	No impairment
Impairment Loss =	$22000	Impairment loss	zero

Indefinite life intangible Asset

IFRS

ASPE

Carrying Amount:	$120000	Carrying value	$120000
Less: Recoverable Amount* Recoverable amount is the higher of: - Fair Value less disposal cost-($80000-$20000)=$60000 - Value in Use (Discounted Cash Flows)-$100000	($100000)	Fair Value	$80000
Impairment Loss =	$20000	Impairment loss	$40000

Journal entry IFRS

Particulars	Debit	Credit
For Depreciable Asset
Impairment Loss	$22000
Building		$22000
For Indefinite Life Intangible Assets
Impairment Loss	$20000
Intangible Assets		$20000

Journal entry ASPE

Particulars	Debit	Credit
For Depreciable Asset
---No Impairment---	---	---
For Indefinite Life Intangible Assets
Impairment Loss	$40000
Intangible Assets		$40000