IPSAS 21& 26 Impairment
IPSAS 21& 26 Impairment
IPSAS 21& 26 Impairment
IMPAIRMENT OF NON-CURRENT
ASSETS
Cash-generating assets:
Assets held with the primary objective of
generating a commercial return.
Non-cash-generating assets:
Assets other than cash-generating assets.
Examples of cash-generating and non-
cash-generating assets
• School
• Hospital
• Transport depot
• Administrative offices.
Recoverable amount:
The higher of an asset’s fair value less costs to sell and its
value in use.
The Impairment Process
1. Assess whether there is an indication
that an asset may be impaired.
(if there is no such indication, then normally no
further action is required)
2. If there is an indication of impairment,
identify the asset's recoverable amount.
3. Reduce the asset's carrying amount to its
recoverable amount, usually by treating
the loss as a separately disclosed expense.
Indications of Impairment
External sources of information:
An entity has a property that was originally acquired for £1m. The entity
measures property using the cost model in IPSAS 17. The following
approach would be followed under IPSAS 26 and IPSAS 21.
The fair value less costs to sell of the property is now estimated to be
only £500,000 and the value in use of the property is calculated as being
£600,000.
Recognising an impairment loss
• The recoverable amount is the higher of fair value
less costs to sell (£500,000) and value in use
(£600,000).
Within a few months of acquisition, CPU usage reached 80%, but declined
to 20% in 20X5 because many applications of the departments were
converted to run on desktop computers or servers. A computer is available
on the market at a price of £500,000 that can provide the remaining service
potential of the mainframe computer using the remaining applications.
15 years later in 20Y8, National Safety Regulations required that the top four stories
of high rise buildings should be left unoccupied for the foreseeable future. The
building has a fair value less costs to sell of £45 million in 20Y8 after the regulations
came into force. The current replacement cost of a similar 20-story building is £85
million.
Impairment is indicated because the extent of use of the office building has changed
from 20 floors to 16 floors as the result of new National Safety Regulations. The
reduction in the extent of use is significant and the occupation of the building is
expected to remain at the reduced level (16 floors) for the foreseeable future.
Value in use of the building after the regulation came into force
(£53,125,000 * 16 ÷ 20) £42,500,000