Impairment of Assets

14/07/2018 2:03 PM

For the first time in many years, the value of an organisation’s assets may have fallen below the market value, and in some cases, below cost. Thus, it is essential that consideration is given to calculating the impairment of your organisation’s assets.

Accounting Standard AASB 136 Impairment of Assets prescribes the procedures that any organisation should apply to ensure that its assets are carried at no more than their recoverable amount. This standard applies to all reporting entities that prepare General Purpose financial statements. However, guidance is given throughout this standard specifically for Not for Profits in the ‘Aus’ paragraphs.

At reporting date, it is advised that you assess whether there is any indication of impairment of your assets. AASB 136 states that, where there is an indication of impairment, you need to estimate the recoverable amount of the asset.

The recoverable amount of an asset is the higher of its fair value, less costs to sell and its value in use. In the case of a Not for Profit organisation, the value in use is the depreciated replacement cost of an asset when the future economic benefits of the asset are not primarily dependent on the asset’s ability to generate net cash inflows, and where the entity would, if deprived of the asset, replace its remaining future economic benefits.

Of particular concern in the current economic climate, is the possible impairment of an organisation’s share portfolio. You should review your share portfolio to determine if there is an indication of impairment. This analysis would typically involve determining the market value of the shares and comparing this to the book value to see if there is any indication of impairment.

In respect of a listed share portfolio, the value of the shares could easily be determined with reference to the share market. Third party confirmation of the value could be obtained, such as a portfolio valuation by a market analyst, to ensure that the shares are currently correctly valued at market value.

In respect of a portfolio of non-listed shares with no active market price, the fair value would need to be determined in order to assess if there is an indication of impairment. Management would be expected to be able to provide support for these valuations.

For more information or for guidance relating to this topic, contact: Scott Phillips or Catherine Davis at Moore Stephens on 03 9614 4444,

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