Fixed asset impairments – IAS 36

Requirement

When the net book value of a fixed asset exceeds its current market value, it becomes necessary for the company to make adjustments to the carrying value of the asset in order to accurately reflect its lower market value. To assess the need for such adjustments, the company must conduct an impairment test for all pertinent assets. This test helps identify the potential requirement for book adjustments based on the disparity between the net book value and the current market value.

M3 solution

There may be an external indication to the company that the value of an asset has fallen. Alternatively, to help determine which assets must be impaired, the reacquisition value is calculated at year end by ‘Annual Run. Perform’ (FAS190), using price index tables. This indexed value is then compared against the current net book value. If the reacquisition value is lower than the net book value, then an additional depreciation adjustment must be booked to reflect the impairment write-down.

As soon as the requirement for impairment is apparent, an extraordinary depreciation is created by ‘FA Depreciation. Create Extraordinary’ (FAS140) for each fixed asset that is affected.

Configuration guidelines

Program ID	Program name	Description or comment
FAS090	Cost of Capital Method. Open	Define a method for the cost of capital. Assign this method to the fixed assets that may require impairment using the fixed asset type or the fixed asset directly.
CRS395	Accounting Rule. Set	Accounting rules FA30 520 and FA30 530 are used for the impairment of fixed assets, to post the results of the extraordinary depreciation.
CRS405	FAM Function. Open	Configure FAM functions FA20 and FA30.
FAS915	Settings - Cost of Capital Calculation	Select the Upd history (Update history) check box. Set the Value Type field to 60-Cost of Capital.
FAS040 FAS045	Column Template - Display FA. Open Column Template FA Value. Open	Create templates to display the carrying amount, the fair value, and the value in use of the assets. Create templates to determine that only fixed assets whose carrying amount is greater than the recoverable amount are to be printed.
FAS060	FA Value Type. Open	To store the impairment adjustment.
FAS140	FA Depreciation. Create Extraordinary	To book the accounting adjustment.
FAS200	Fixed Asset. Display	To display the impairment value.
FAS510	Fixed Asset. Print Values	To print asset and impairment values.