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[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off”][et_pb_row admin_label=”Row”][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”http://www.frs102.com/members/premium-toolkit/” type=”big” color=”red”] Return to Main Index[/button] [/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text admin_label=”Text” background_layout=”light” text_orientation=”center” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”] [button link=”https://uk.frs102.com/members/premium-toolkit/section-27/” type=”big” color=”red”] Return to Section 27 Home[/button] [/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section][et_pb_section admin_label=”Section” fullwidth=”off” specialty=”off” transparent_background=”off” allow_player_pause=”off” inner_shadow=”off” parallax=”off” parallax_method=”off” padding_mobile=”off” make_fullwidth=”off” use_custom_width=”off” width_unit=”on” make_equal=”off” use_custom_gutter=”off” gutter_width=”3″][et_pb_row admin_label=”Row”][et_pb_column type=”4_4″][et_pb_text admin_label=”Main Body Text” background_layout=”light” text_orientation=”justified” text_font_size=”14″ use_border_color=”off” border_color=”#ffffff” border_style=”solid”]Section 27 – Example 1 – Accounting Policy Note – Impairment of Assests
Example 23 – extract from an accounting policy note
Property, plant and equipment
Property, plant and equipment are recorded at historical cost or deemed cost (note include valuation here where appropriate), less accumulated depreciation and impairment losses. Cost includes prime cost, overheads and interest incurred in financing the construction of tangible fixed assets. Capitalisation of interest ceases when the asset is brought into use.
Freehold premises are stated at cost (or deemed cost for freehold premises held at valuation at the date of transition to FRS 102) less accumulated depreciation and accumulated impairment losses.
The company previously adopted a policy of revaluing freehold premises and they were stated at their revalued amount less any subsequent depreciation and accumulated impairment losses. The company has adopted the transition exemption under FRS 102 paragraph 35.10(d) and has elected to use the previous revaluation as deemed cost OR The company has adopted the transition exemption under FRS 102 paragraph 35.10(C) and has elected to use the fair value as deemed cost.
The difference between depreciation based on the deemed cost charged in the profit and loss account and the asset’s original cost is transferred from the non-distributable reserve to retained earnings through equity.
Equipment and fixtures and fittings are stated at cost less accumulated depreciation and accumulated impairment losses.
Where investment property can no longer be reliably measured without undue cost or effort these assets are reclassified to property, plant and equipment at the carrying amount prior to the transfer and depreciated over the useful economic lives.
Spare parts that are acquired as part of an equipment purchase which are only to be used in connection with these specific assets are initially capitalised and amortised as part of the equipment. Spare parts which are expected to be used during more than one period are capitalised as property, plant and equipment.
Impairments
The carrying amounts of the Group’s/Company’s assets, other than inventories (which are carried at the lower of cost and net realisable value), deferred tax assets (which are recognised based on recoverability), investment properties (which are carried at fair value), and those financial instruments, which are carried at fair value, are reviewed to determine whether there is an indication of impairment when an event or transaction indicates that there may be. If any such indication exists, an impairment test is carried out and the asset is written down to its recoverable amount.
The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. Value in use is defined as the present value of the future pre-tax and interest cash flows obtainable as a result of the asset’s continued use. The pre-tax and interest cash flows are discounted using a pre-tax discount rate that represents the current market risk free rate and the risks inherent in the asset. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units).
An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. An impairment loss is recognised in the profit and loss account, unless the asset has been revalued when the amount is recognised in other comprehensive income to the extent of any previously recognised revaluation. Thereafter any excess is recognised in profit or loss.
Impairment losses recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill allocated to the cash-generating unit and then, to reduce the carrying amount of the other assets in the unit on a pro rata basis.
An impairment loss, other than in the case of goodwill, is reversed if there has been a change in the estimates used to determine the recoverable amount. If an impairment loss subsequently reverses, the carrying amount of the asset (or asset’s cash generating unit) is increased to the revised estimate of its recoverable amount, but only to the extent that the revised carrying amount does not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognised in prior periods. A reversal of an impairment loss is recognised in the profit and loss account.
Extract from notes to the financial statements
Exceptional item – impairment charge
| 2015 | 2014 | |
| € | € | |
| Impairment of tangible fixed assets | 8,000 | – |
| Amortisation of deferred grants arising on impairment of related assets | (500)
—————— |
–
– —————– |
| 7,500 | – |
The directors have reviewed the carrying value of tangible fixed assets, net of associated deferred grants, at the year end in accordance with Section 27 “Impairment of Assets”. As a result, a net impairment loss of €8,000 (2014: €Nil) has been charged to the profit and loss account for the year. The impairment of €8,000 represents an impairment of tangible fixed assets net of a release of related deferred grants of €500. The impairment losses have been allocated to fixed assets categories on a pro-rata basis relative to their pre-impairment carrying values. The impairment loss arose as a result of the material change in the market in which the company operates.
The company’s activities were considered, due to their nature, to form one income-generating unit for the purposes of the impairment review. A pre-tax discount rate of 6%, representing the estimated market rate of return on an investment with equal risk, was applied to the expected future cash flows in the value in use calculation. Value in use was considered to exceed estimated net realisable value. Cash flows have been projected over five years based on management forecasts and budgets. After that a steady growth rate of 1% has been assumed.
Tangible fixed assets
| Land and
buildings |
Plant and
Machinery |
Total |
|
| €’000 | €’000 | €’000 | |
| Cost | |||
| At 1 January 2015 | 20,000 | 100,000 | 120,000 |
| Additions | – | 10,000 | 10,000 |
| Disposals | (1,000)
|
–
|
(1,000)
|
| At 31 December 2015 | 19,000
|
110,000
|
129,000
|
| Accumulated depreciation | |||
| At 1 January 2015 | 10,000 | 60,000 | 70,000 |
| Charge for year | 500 | 1,000 | 1,500 |
| Impairment in year (note 3) | 1,000 | 7,000 | 8,000 |
| Disposals | (1,000)
|
–
|
(1,000)
|
| At 31 December 2015 | 9,500
|
69,000
|
78,500
|
| Net book value | |||
| At 31 December 2015 | 9,500
|
41,000
|
33,500
|
| At 31 December 2014 | 10,000
|
40,000
|
42,000
|
Extract from profit and loss where impairment is shown as an exceptional item
| Profit and Loss Account | |||
| For the Year Ended 31 December 2015 | |||
| Notes | 2015 | 2014 | |
| € | € | ||
| Turnover | 1 | XXXXX | XXXXX |
| Cost of sales | (XXXX)
|
(XXXX)
|
|
| Gross profit | XXXX | XXXX | |
| Selling and distribution costs | (XXX) | (XXX) | |
| Administrative expenses | (XXX) | (XXX) | |
| Other operating income | XXX
|
XXX
|
|
| Operating profit | 3 | 900,000 | XXX |
| Operating profit before exceptional item | 1,200,000 | XXX | |
| Impairment of tangible fixed assets | 150,000 | XXX | |
| Restructuring provision | 150,000 | XXX | |
| Operating profit | 900,000 | XXX | |
| Income from shares in group undertakings | 4 | XXX | XXX |
| Income from shares in other financial assets | 4 | XXX | XXX |
| Income from shares in participating interests | 5 | XXX | XXX |
| Profit on ordinary activities before interest and taxation | XXXX | XXXX | |
| Interest receivable and similar income | 6 | XXX | XXX |
| Interest payable and similar income | 7 | (XXX)
|
(XXX)
|
| Profit on ordinary activities before taxation | XXXX | XXXX | |
| Tax on profit on ordinary activities | 8 | (XXX)
|
(XXX)
|
| Profit on ordinary activities after taxation | 1,000,000 | 500,000 |
| Profit for the financial year attributable to: | ||
| Owners of the parent company | 1,000,000
|
500,000
|
| 1,000,000 | 500,000 |
Extract from notes to the financial statements
Exceptional item – impairment charge
| 2015 | 2014 | |
| € | € | |
| Restructuring costs (see (i) below) | 8,000 | – |
| Impairment of tangible fixed assets | 8,000 | – |
| Amortisation of deferred grants arising on impairment of related assets | (500)
|
–
|
| 7,500
|
–
|
(i) During the year the company announced a formal plan to restructure the operations and as a result announced a plan to let employees go. This amount represents the expected cost of redundancy as a result of this decision.
(ii) The directors have reviewed the carrying value of tangible fixed assets, net of associated deferred grants, at the year end in accordance with Section 27 “Impairment of Assets”. As a result, a net impairment loss of €8,000 (2014: €Nil) has been charged to the profit and loss account for the year. The impairment of €8,000 represents an impairment of tangible fixed assets net of a release of related deferred grants of €500. The impairment losses have been allocated to fixed assets categories on a pro-rata basis relative to their pre-impairment carrying values. The impairment loss arose as a result of the material change in the market in which the company operates. Deferred tax has been recognised as a result of this adjustment.
The company’s activities were considered, due to their nature, to form one income-generating unit for the purposes of the impairment review. A pre-tax discount rate of 6%, representing the estimated market rate of return on an investment with equal risk, was applied to the expected future cash flows in the value in use calculation. Value in use was considered to exceed estimated net realisable value. Cash flows have been projected over five years based on management forecasts and budgets. After that a steady growth rate of 1% has been assumed.
| Exceptional item | 2015 | 2014 |
| € | € | |
| Administrative expenses in the profit and loss account includes the following exceptional charges: | ||
| Provision against investment in subsidiary/joint venture/associate | XX
|
XX
|
| XX
|
XX
|
Extract from notes where impairment is not deemed exceptional
OPERATING PROFIT
Operating profit is stated after charging/(crediting):
| 2015 | 2014 | ||
| € | € | ||
| Depreciation | 149,999 | 170,037 | |
| Directors’ remuneration: | 212,000 | 225,600 | |
| Impairment of goodwill (included within administrative expenses) | – | – | |
| Impairment of property, plant and equipment (included within administrative expenses) | – | – | |
| Impairment of investment in subsidiary/associate/joint venture | – | – | |
| Reversal of impairment of property, plant and equipment (included within administrative expenses) See note 1 | – | – | |
| Reversal of impairment of goodwill/intangibles (included within administrative expenses) | – | – | |
| Reversal of impairment of inventory (included within cost of sales) | – | – | |
| Impairment of inventory (included within cost of sales) | – | – | |
| Inventory recognised as an expense | – | – | |
| Auditors’ remuneration | |||
| Audit | 13,000 | 13,000 | |
| Non audit services | 3,000 | 3,000 | |
| Tax Advisory | 3,225 | 3,225 |
Note 1:
The directors have reviewed the carrying value of tangible fixed assets, net of associated deferred grants, at the year end in accordance with Section 27 “Impairment of Assets”. As a result of this exercise performed, a reversal of a previous impairment loss of €8,000 (2014: €Nil) has been credited to the profit and loss account for the year. The reversal of the impairment of €8,000 represents a reversal of an impairment of tangible fixed assets net of a release of related deferred grants of €500. The reversal of the impairment loss previously recognised has been allocated to fixed assets categories on a pro-rata basis relative to their post-impairment carrying values at the date of the reversal. The amount of impairment reversed was limited to the amount the fixed assets would have been carried at if no impairment had previously been booked.
The company’s activities were considered, due to their nature, to form one income-generating unit for the purposes of the impairment review. A pre-tax discount rate of 6%, representing the estimated market rate of return on an investment with equal risk, was applied to the expected future cash flows in the value in use calculation. Value in use was considered to exceed estimated net realisable value. Cash flows have been projected over five years based on management forecasts and budgets. After that a steady growth rate of 1% has been assumed. The reversal of the impairment arose due to the fact that the market in which the company operates has significantly improved and the previous estimates included in the initial impairment review were too pessimistic.
Extract from notes to the financial statements for an entity that holds an associate/subsidiary/joint venture/other interest but is not required to prepare consolidated financial statements – Financial asset note
| Financial assets | Subsidiary Undertakings | Joint Venture and associates | Other investments | Total | |
| € | € | € | € | ||
| Cost | |||||
| At 1 January 2015, 1 January 2014 & 1 January 2013 | XXX | XXX | XXX | XXX | |
| Additions | XXX | XXX | XXX | XXX | |
| Fair value adjustments | XXX | – | XXX | ||
| Disposals | –
|
(XXX)
|
–
|
(XXX)
|
|
| At 31 December 2015 | XXX
|
XXX
|
XXX
|
XXX
|
|
| Amounts provided: | |||||
| At 1 January 2015, 1 January 2014 & 1 January 2013 | XXX | – | XXX | XXX | |
| Additional provision/impairment | XXX
|
–
|
–
|
XX
|
|
| At 31 December 2015 | XXX
|
XXX
|
XXX
|
XXX
|
|
| Carrying amount | |||||
| At 31 December 2015 | XXXX
|
XXXX
|
XXXX
|
XXXX
|
|
| At 31 December 2014 | XXXX
|
XXXX
|
XXXX
|
XXXX
|
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