Impairment of assets: Accounting standards

IAS 36 requires that businesses report any impairments and the causes thereof in their financial statements. It is vital that impairment losses are disclosed to creditors and shareholders so they can understand how the management views the company’s financial situation and future outlook. NSK and Konica Minolta were the only two organizations that recently reported an impairment loss on their financial statements. Konica Minolta will report an impairment loss in 2022, based on impairment tests conducted in compliance with IFRS. They were asked to identify assets that could be tested and set impairment levels. This was so the accountant could calculate undiscounted Cash Flows and keep track of their value in fixed asset register.
IAS 36, Impairment of Assets describes the accounting procedure for assets that are impaired. When an asset’s value is greater than its recoverable amount, it is called impairment loss. The asset’s fair value less any selling costs or the amount it is currently in use are the recoverable amounts. An impairment loss or profit is a loss that exceeds the asset’s carrying value. This amount can be reported in the form of an impairment loss. IAS 36 ensures that financial statements are accurate and reflect current market conditions. Report an impairment loss if it appears unlikely that the asset’s carrying amount will not recover. To determine the probability of impairment, it is necessary to examine all factors, including past performance, current economic conditions, and expected future events. Both physical assets and intangibles can be covered by the IAS 36 standard. Property, plant, and equipment (PP&E) and investments in subsidiaries are examples of tangible assets. Intangible assets are patents and copyrights. IAS 36 allows for the evaluation of the likelihood that an intangible assets will be recovered. It is determined based upon its estimated fair price minus any selling expenses. These are used to calculate impairment loss.
IAS 36’s fundamental principle states that assets should not be included in financial statements if their value is greater than what may be earned from the sale or use of them. The asset can only be written off if its carrying value exceeds what may be collected. An organization must reduce an asset’s value to the recoverable amount in accordance with impairment principles and then record any difference as impairment loss (IL). This concept applies also to receivables which do not produce cash flows from their respective monetary units. (IFRS 2022). All assets are subject to the concept, except those that have been damaged or destroyed by other criteria. Some assets derived from noncurrent insurance contracts, which are held in trust, as well as assets subject of impairment, investment property assessed at fair price, financial assets subject IFRS 9, such employer benefit assets and deferred-tax assets, are exempted.

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