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Commission Regulation
(EC) No 2236/2004 of 29 December 2004 amending
Regulation (EC) No 1725/2003 adopting certain
international accounting standards in accordance with
Regulation (EC) No 1606/2002 of the European Parliament
and of the Council as regards International Financial
Reporting Standards (IFRSs) Nos 1, 3 to 5, International
Accounting Standards (IASs) Nos 1, 10, 12, 14, 16 to 19,
22, 27, 28, 31 to 41 and the interpretations by the
Standard Interpretation Committee (SIC) Nos 9, 22, 28
and 32
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Impairment loss for a
cash-generating unit
104. An
impairment loss shall be recognised for a cash-generating
unit (the smallest group of cash-generating units to which
goodwill or a corporate asset has been allocated) if, and
only if, the recoverable amount of the unit (group of units)
is less than the carrying amount of the unit (group of
units). The impairment loss shall be allocated to reduce the
carrying amount of the assets of the unit (group of units)
in the following order:
(a)
first, to reduce the carrying amount of any goodwill
allocated to the cash-generating unit (group of units);
and
(b)
then, to the other assets of the unit (group of units)
pro rata on the basis of the carrying amount of each
asset in the unit (group of units).
These
reductions in carrying amounts shall be treated as
impairment losses on individual assets and recognised in
accordance with paragraph 60.
105. In
allocating an impairment loss in accordance with paragraph
104, an entity shall not reduce the carrying amount of an
asset below the highest of:
(a) its
fair value less costs to sell (if determinable);
(b) its
value in use (if determinable); and
(c)
zero.
The amount
of the impairment loss that would otherwise have been
allocated to the asset shall be allocated pro rata to the
other assets of the unit (group of units).
106. If it is not
practicable to estimate the recoverable amount of each
individual asset of a cash-generating unit, this Standard
requires an arbitrary allocation of an impairment loss
between the assets of that unit, other than goodwill,
because all assets of a cash-generating unit work together.
107. If the
recoverable amount of an individual asset cannot be
determined (see paragraph 67):
(a) an
impairment loss is recognised for the asset if its
carrying amount is greater than the higher of its fair
value less costs to sell and the results of the
allocation procedures described in paragraphs 104 and
105; and
(b) no
impairment loss is recognised for the asset if the
related cash-generating unit is not impaired. This
applies even if the asset’s fair value less costs to
sell is less than its carrying amount.
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Example
A machine has
suffered physical damage but is still working, although
not as well as before it was damaged. The machine’s fair
value less costs to sell is less than its carrying
amount. The machine does not generate independent cash
inflows. The smallest identifiable group of assets that
includes the machine and generates cash inflows that are
largely independent of the cash inflows from other
assets is the production line to which the machine
belongs. The recoverable amount of the production line
shows that the production line taken as a whole is not
impaired.
Assumption 1:
budgets/forecasts approved by management reflect no
commitment of management to replace the machine.
The
recoverable amount of the machine alone cannot be
estimated because the machine’s value in use:
(a) may
differ from its fair value less costs to sell; and
(b) can
be determined only for the cash-generating unit to
which the machine belongs (the production line).
The production
line is not impaired. Therefore, no impairment loss is
recognised for the machine. Nevertheless, the entity may
need to reassess the depreciation period or the
depreciation method for the machine. Perhaps a shorter
depreciation period or a faster depreciation method is
required to reflect the expected remaining useful life
of the machine or the pattern in which economic benefits
are expected to be consumed by the entity.
Assumption 2:
budgets/forecasts approved by management reflect a
commitment of management to replace the machine and sell
it in the near future. Cash flows from continuing use of
the machine until its disposal are estimated to be
negligible.
The machine’s value in use can be estimated to be close
to its fair value less costs to sell. Therefore, the
recoverable amount of the machine can be determined and
no consideration is given to the cash-generating unit to
which the machine belongs (ie the production line).
Because the machine’s fair value less costs to sell is
less than its carrying amount, an impairment loss is
recognised for the machine.
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108. After the
requirements in paragraphs 104 and 105 have been applied, a
liability shall be recognised for any remaining amount of an
impairment loss for a cash-generating unit if, and only if,
that is required by another Standard.
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