11.2.4: Intangible Assets- Impairment and Derecognition
- Page ID
- 100525
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)The process of impairment and derecognition of intangible assets is like that of property, plant, and equipment. Below is a summary of two models used for definite-life and indefinite-life intangible assets.
| ASPE Cost Recovery Impairment Model | IFRS: Rational Entity Impairment Model | ||
|---|---|---|---|
| Assumes that the asset will continue to be used. The asset is impaired only if the carrying value of the asset is more than the sum of the net future undiscounted cash flows from both the use and eventual disposal of the asset. | Assumes that the asset will either continue to be used or disposed of, depending upon which results in a higher return. The asset is impaired only if the carrying value of the asset is more than the asset's recoverable amount (a discounted cash flow concept), being the higher of its value in use and its fair value less costs to sell. | ||
| Definite-Life Intangible Assets | |||
| Impairment recognition | Only when events and circumstances indicate that the carrying value may not be recoverable, as determined by a recoverability test. | Impairment recognition | An assessment is made at the end of each reporting period as to whether there is any indication that the asset is impaired. |
| Recoverability test | If the carrying value is greater than the undiscounted future cash flows, then the asset is impaired, and the impairment loss is calculated. | Recoverability test | None |
| Impairment loss | The asset carrying value less fair value. | Impairment loss | 1) Calculate the recoverable amount as the higher of the value in use and the fair value less costs to sell. 2) If the asset carrying value is more than the recoverable amount, then the asset is impaired by the difference between these two amounts. |
| Impairment reversal | Not permitted | Impairment reversal | If the recoverable amount has increased, then a reversal is allowed, but it cannot exceed the asset's carrying value excluding any impairments. |
| Indefinite-Life Intangible Assets | |||
| Impairment recognition | Only when events and circumstances indicate impairment is possible as determined by a fair value test. | Impairment recognition | Tested for impairment annually. |
| Fair value test | If the carrying value is greater than the fair value, then the asset is impaired, and the loss is calculated. | Fair value test | None |
| Impairment loss | Equal to the difference resulting from the fair value test. | Impairment loss | Same as for definite-life intangible assets above. |
| Impairment reversal | Not permitted. | Impairment reversal | Same as for definite-life intangible assets above. |
The entry for impairment for both ASPE and IFRS is:
Amortization calculation after impairment for both ASPE and IFRS is based on the adjusted carrying value after impairment, the revised residual value (if any), and the asset's estimated remaining useful life.
When an intangible asset is disposed of, the difference between the net proceeds and the asset's carrying value is the gain or loss reported in net income. The asset and its accumulated amortization are removed from the accounts.
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