This document provides an overview of MFRS136 Impairment of Assets. It discusses identifying impaired assets, measuring recoverable amount, recognizing impairment losses, and disclosing impairments. Key points include: MFRS136 requires comparing an asset's carrying amount to its recoverable amount, which is the higher of fair value less costs to sell or value in use determined through discounted future cash flows. An impairment loss is recognized when carrying amount exceeds recoverable amount. Reversals of impairment losses or write-ups are also discussed. The document outlines impairment review processes and provides examples of calculating recoverable amounts.

1. CORPORATE
REPORTING
MFRS136 –
Impairment of assets
Dayana Mastura, FCCA(UK), CA(M)

2. Learning Outcomes
Identify
Identify an
asset that may
be impaired
Explain
Explain the
different
measurements
of he
recoverable
amount
Explain
Explain the
recognition of
an impairment
loss
Discuss
Discuss the
reversal of an
impairment
loss
Discuss
Discuss the
disclosure for
impairment

3. MFRS136 is not applicable
in the following situations:
MFRS102 –
Inventories
MFRS15-
Revenue from
Contracts with
Customers
MFRS 112 –
Income Taxes
MFRS119 –
Employee
Benefits
MFRS9 –
Financial
Instruments
MFRS140 –
Investment
Property
MFRS141 –
Agriculture
MFRS4 –
Insurance
Contracts
MFRS5 – Non-
Current Assets
Held for Sale

4. MFRS136
applies to
the
following
financial
assets:
MFRS127 – Consolidated and
Separate Financial Statements
MFRS128 – Investments in
Associates
MFRS131 – Interests in Joint
Ventures

5. The main
accounting
issues to
consider
are:
Prepare Prepare the accounting for impairment in
accounts
Determine Determine the impairment loss
Measure Measure recoverable amount
Determine Determine if an asset impaired

6. Indications of
Impairment
An asset may be
impaired due to many
reasons
1
Impairment may be due
to changes in the market
value or obsolescence
2
All assets should be
reviewed at the end of
each reporting period for
any indication of
impairment
3
There are elements of
external and internal
sources that determines
whether assets needs to
be impaired or not
4

7. External
sources of
Impairment
Significant decline in the market value of the asset during the
year
Significant adverse change in technological, market,
economic or legal environments in which the entity operates
or the market to which an asset is attached (e.g significant
and prolonged oil price reduction in the oil and gas industry)
Increases in the market interest rates which are most likely to
decrease the asset’s recoverable amount (e.g reduce the
discounted cash flow valuation of the asset)
Carrying amount of an entity’s net assets axceeds its market
capitalisation

8. Internal
sources of
Impairment
There is evidence of obsolescence or
physical damage to an asset (e.g office
building damaged in a flood)
Current or future adverse changes in th
extent to which an asset is used or expected
to be used (e.g school building used as a
public library)
Worse than expected economic performance
of an asset (e.g machine in a factory not able
to produce up to its production capacity or
expected production volumes)

9. Is there an
indication that
an asset may
be impaired?
Then the RECOVERABLE AMOUNT
needs to be identified

10. Is there any
evidence of
impairment?
The need to identify whether the
CARRYING AMOUNT is MORE
than the RECOVERABLE
AMOUNT

11. The Impairment Review
Process
Comparing the carrying
amount and the
recoverable amount for
a particular asset
The assets are carried
at no more than their
recoverable amount
When there is some
evidence that an asset
may be impaired, need
to identify whether the
carrying amount is
more than its
recoverable amount
If yes, the carrying
amount needs to be
reduced to its
recoverable amount
and an impairment loss
is recognized
However, if the
recoverable amount
exceeds the carrying
amount, no impairment
write-down is
necessary

12. The Impairment Review Process

13. Carrying
Amount /
Net
Book
Value
The amount at which the asset is stated
in the Statement of Financial Position
after reducing its accumulated
depreciation and accumulated
impairment (if any) accordingly
On paper / within the accounting
records as opposed to the real value in
the market-place based on current
circumstances

14. Recoverable
Amount
The concept essentially focuses on
the greatest value that can be
obtained from an asset, either by
selling or using it
The objective of MFRS136 is to
ensure that assets are carried at no
more than their recoverable amount
In reality based on current
circumstances, not on paper /
accounting records
Defined as the greater of FAIR
VALUE LESS COSTS TO SELL
(FVLCTS) and the VALUE IN USE
(VIU)

15. Fair Value
Less Costs To
Sell (FVLCTS)
Amount receivable
from the sale of
the assets
Less the costs of
disposal

16. Example of FVLTCS
If a machine that is subject
to impairment testing has a
fair value or market value
of RM 500,000 and the
estimated disposal cost of
RM 20,000.
The FVLCTS is RM
500,000 – RM 20,000 = RM
480,000

17. Value in Use (VIU)
Present value of
the future cash
flows from the
asset
The cash flows are
derived from the
usage of an asset
in the normal
course of business
The cash flows are
derived from the
disposal of the
asset at the end of
the useful life

18. Identification
of Value in
Use (VIU)
Cash flow projection – estimate of future
cash flow that the company expects to
derive from the particular asset excluding
cash flow from financing and income tax
payment
Discount rate – pre-tax rate which reflects
the current market assessments of the time
value of money and the risks associated with
the asset

19. How to
determine if
there is any
Impairment?
Impairment Loss =
Carrying Amount >
Recoverable Amount
No Impairment Write-Down
necessary= Recoverable
Amount > Carrying Amount

20. Cash-Generating Unit (CGU)
The norm is that impairment testing needs to be done to a particular group of assets instead of a single asset, as
most of a company’s operations depend on a few types or numbers of assets.
A cash-generating unit (CGU) is usually the smallest identifiable group of assets that generate cash inflows that are
largely INDEPENDENT of the cash inflows from other assets or group of assets.
For example, it is not possible to determine the cash inflows for the individual assets of a production line made up of
many different machines, even where the fair value less costs to sell off (FVLCTS) some of the individual machines is
known because the function of those machines is generic to a number of manufacturing processes. The value in use
(VIU) of the machines in a production line (the Cash Generating Unit – CGU) must therefore be determined as a
whole.

21. Recognizing
an
Impairment
Loss
At the end of each reporting period, assess
whether there is any indication that a
particular asset may be impaired
If there exists some indication of impairment,
the entity needs to estimate the recoverable
amount of the asset.
An impairment loss is recognized when the
recoverable of an asset is less than its
carrying amount.
Hence, the impairment loss is charged in the
Statement of Profit or Loss while recognizing
it as an expense

22. No
Impairment
Write-down
or Loss
If the fair value
exceeds the
carrying amount of
the asset in the
financial
statements;
Then it is not
necessary to have
the impairment
write-down

23. Impairment
Write-down
for Tangible
Assets
If fair value less costs to sell
(FVLCTS) is less than the
carrying amount in the financial
statement
It is necessary to calculate the
asset’s Value in Use (VIU)

24. Reversal of an Impairment Loss
An entity is required to
assess assets at the end
of each reporting period
for evidence than an
impairment loss may have
declined or decreased.
If that happens, the
asset’s recoverable
amount should be
identified and computed.
The reversal of an
impairment loss is
recognized in the profit or
loss, unless it relates to a
revalued asset.

25. Disclosure
Requirements
According to MFRS136, an entity should
disclose the following for each class of
assets:
• The amount of impairment losses recognized in
profit or loss during the period, and the line item(s)
of the SOCI in which those impairment losses are
included
• The amount of reversals of impairment losses
recognized in profit and loss during the period, and
line item(s) of the SOCI in which those impairment
losses are reversed.
• The amount of impairment losses on revalued
assets recognized in other comprehensive income
during the period
• The amount of reversals of impairment losses on
revalued assets recognized in other comprehensive
income during the period.

26. Thank You