1. DETERIORATION OF ASSETS
CONCEPTS
Lost due to deterioration
An impairmentlossoccurswhenthe carryingamountof an asset exceedsitsrecoverable
amount.
Recoverable amount
The greaterbetweenthe fairvalue lessthe costsof selling anassetandits value inuse.
Fair value
It isthe amountthat can be obtainedbythe sale of an asset,ina transactioncarriedoutunder
conditionsof mutual independence betweeninterested partiesanddulyinformed.
Value inuse
The presentvalue of estimatedfuturecashflowsthatare expectedtobe obtainedfroman
assetor cash generatingunit.
Value in use
The value inuse is a measurementmade bythe entity."The value inuse isthe presentvalue of
the future cash flowsexpected tobe obtainedfromanasset".
To obtaina projectionof the future cashflowsthatcan be obtainedfromanasset,itis
necessarytoidentify:
* The accountingitemseparately,thatis,the individual assetorthe cash-generatingunitin
particular.
* What isthe possibilitythatthe assetmaycontinue tobe usedby the entity.
* What wouldbe the economicbenefitsfromthe assetinthe future.
* What wouldbe the value of the cash outflowsgeneratedbythe continuoususe of the asset.
* What isthe discountrate that shouldbe appliedtocashflows?
* What isthe sum of the expectedcashflowswhenapplyingthe discountrate.
In orderto identifythese variablesandestimate future cashflows,the entitycanuse
forecastingmethods,forecastsorfinancial budgetsthatdonot include financingincome,tax
payments,orsupposedrestructuringof the entityorimprovementsinthe performance of the
entity.active;the assetmustbe estimatedtakingintoaccountthe state inwhichitiscurrently.
2. In manycases,an individuallyconsideredassetdoesnotgenerate cashflowsonitsown,for
whichreasonitis necessarytogroupthe assetsincash generatingunits(CGU),inorderto
assessthe impairmentof thatgroupof assets.Once the deteriorationof the CGU has been
assessed,the resultisdistributedamongthe assetsthatmake upthe Unit.
Impairmentsoccurwhenthe assetsof the companylose value.If the currentmarketvalue of
an assetis reducedlessthanthe bookvalue of the asset,the assetisimpaired.The fairmarket
value isthe value of the assetin a transactionbetweenunrelatedparties.The bookvalue of
the assetis the amountof the assetinthe company'sfinancial statements.Impairmentsuse
the difference betweenbookvalue andfairmarketvalue andreportthe difference asan
impairmentloss.
Subtract the marketvalue of the assetfrom itsbookvalue.If the amountispositive,then
there isno impairmentloss.
DETERIORATION OF THE VALUE OF INVENTORIES
The IFRS for SMEs requirescompaniestoassessatthe endof each reportingperiodwhether
inventorieshave deteriorated,whenthe value of inventoriesisnotfullyrecoverable,for
damages,obsolescence ordeclineinsellingprices.Wheninventoriesare impaired,the IFRS for
SMEs insection27 Impairmentof Assets,inparagraphs27.2 to 27.4, establishesthat
inventoriesshouldbe measuredbycomparingthe carryingamountwiththeirsellingprice less
the costs of terminationandsale andrecognizingalossdue to impairmentof value.Lossdue
to impairmentof value mustbe made foreachitemof inventoriesorbygroupingsimilar
items.
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The entitywill evaluateatthe endof each period,if there isanyindicationof impairmentof an
asset.If thisindication exists,the entitywillestimate the recoverableamountof the asset.
Its applicationisexclusive for:
(a) Inventories,
(b) Property,plantandequipment(includinginvestmentpropertiesaccountedforusingthe
cost method),
(c) Goodwill,
(d) Intangible assetsotherthangoodwill,
(e) Investmentsinassociatesand
(f) Investmentsinjointventures
3. DETERIORATION OF THE VALUE OF INVENTORIES
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The causes that generate deterioration in the value of the inventories and
consequently that the net realizable value of the inventories are below their
cost are:
* Damaged Inventories:
Factors that cause inventories to be damaged; manipulation of personnel,
transfer of merchandise, inadequate storage, excess merchandise in
warehouses, floods, fires, earthquakes, etc.
* Obsolete Inventories:
It consists of the reduction of the value of the original cost of inventories,
caused by technological, economic and other causes motivated by external
factors
The causes that generate deterioration in the value of the inventories and
consequently that the net realizable value of the inventories are below their
cost are:
* Fall of the Sale Prices:
Among the causes for which a product suffers from falling prices in the
market; little demand from consumers, unfair competition, over-supply, type
of merchandise, little amount of merchandise. Some factors that cause the fall
in prices can be measured through economic indicators, for which the
Consumer Price Index (CPI) can be used. As well as the sensitivity in the
demand or the diminution of the effective capacity of the consumer to pay for
a good as well as the small amount of merchandise that the consumers are
willing to buy, the type of merchandise, which become obsolete due to
substitute merchandise and complementary
4. DETERIORATION OF THE VALUE OF OTHER ASSETS
DIFFERENT FROM INVENTORIES
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General principles
The entity will reduce the carrying amount of the asset to its recoverable
amount if, and only if, the recoverable amount is less than the carrying
amount. This reduction is a loss due to impairment of value.
An entity recognizes an impairment loss immediately in profit or loss.
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Factors that must be taken into account for estimating the impairment of an
asset:
External sources of information
a) During the period, the market value of an asset has decreased significantly
b) During the period, changes have taken place regarding the legal, economic,
technological or market environment in which the entity operates, or else, in
the market to which the asset is destined.
c) Variation in market interest rates
d) The carrying amount of the net assets of the entity is greater than the
estimated fair value of the entity as a whole.
Evidence is available about the obsolescence or physical deterioration of an
asset
information to reveal
The following information must be disclosed:
a) The amount of impairment losses recognized in profit or loss during the
period and the line item or items in the statement of comprehensive income
(and the statement of income, if presented) in which those impairment losses
are included.
b) The amount of reversals of impairment losses recognized in results during
the period and the line item or items in the statement of comprehensive
income in which such impairment losses reversed.
5. The above information must be disclosed for: (a) Inventories, (b) Properties,
plants and equipment (including investment properties accounted for using the
cost method), (c) Goodwill, (d) Intangible assets other than goodwill, (e)
Investments in associates and (f) Investments in joint ventures.
An entity owns a machine. At the end of 2017, the machine has a book value
of $ 70,000,000, determined by its cost of $ 120,000,000 and an accumulated
depreciation of $ 50,000,000, a useful life of 10 years and a residual value of $
20,000,000. The price of the machine or a similar one in the market is $
50,000,000. According to the quotes made, transportation costs must be borne
by the entity and have a cost of $ 3,000,000. To date, the entity determines
that the machine represents a bottleneck in production, and therefore its use
has been reduced considerably.
Since the value in use according to the entity could not be higher than the fair
value less costs to sell, the entity estimates the recoverable amount of the
machine in the following way:
(+) Fair value $ 50,000,000
(-) Cost of sale $ 3,000,000
(=) Recoverable amount $ 47,000,000
To calculate the loss of deterioration, the following will be done:
+) Amount of the machine in books $ 70,000,000
(-) Recoverable amount $ 47,000,000
(=) Loss due to impairment $ 23,000,000
The proposed accounting would be the following:
Debit Credit account
Loss due to asset impairment / $23.000.000
Impairment of the asset's value $23.000.000
DIFFERENCES LOCAL NORMA vs IFRS
Way in the restoration of the impairment loss is handled. Pursuant to Mexican
GAAP, after Loss deteriorates, the reduced carrying amount of an asset held
for its use becomes the new cost basis.
6. IFRS
In contrast, the IFRS requires that all long-lived assets (should be reviewed
annually for investment indicators.) If applicable, the loss can be reversed up
to the recently estimated recoverable amount, without exceeding the initial
adjusted carrying amount. for depreciation.
DIFFERENCE BETWEEN DEPRECIATION, AMORTIZATION AND
DETERIORATION OF VALUE
Depreciation is the loss of value that an asset systematically experiences as a
consequence of its use, due to the passage of time, wear and tear, normal
disuse, technological obsolescence or other concepts that diminish its
production capacity or economic utility, limited by a number of years of
useful life. Therefore, depreciation as an accounting estimate generates a non-
incurred expense or cost, when producing goods or services, respectively.
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Amortization is the normal and systematic reduction of the value of an
intangible asset (studies, trademarks, copyrights, software, etc.) in the
generation of future economic benefits or potential services due to the use or
use of an intangible asset. However, it is amortized, depending on a certain
useful life, estimating the potential for future services that it may generate,
which is equivalent to carrying expenses that have not been incurred and that,
therefore, should not be recovered, if it does not affect the results of the
exercise
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Impairment is an abnormal loss of value due to external factors that obey
criteria of qualification or valuation of the asset at a given time, to recognize
its current value or to decide the change of use after an evaluation; impairment
can occur in intangible assets or in tangible fixed assets and occurs above
depreciation. This loss can be of a reversible nature, that is, that are probable
or certain, but indeterminate in terms of time or amount, for example: shares
that have gone down in the stock market suffer deterioration in value at a
certain time, but can recover their value later due to its high price; The same
applies to fixed assets, they may have suffered a deterioration in value at a
certain time, but for the purposes of their valuation or market price they can
recover their value.
