Impairing Fixed Assets in M3 BE

Terms in M3

The term non-current assets in IAS 36 is synonymous with fixed assets in M3 BE.

The term carrying amount in IAS 36 is synonymous with the recorded amount in M3 BE; that is, the value of the fixed asset in the balance sheet. The recorded amount represents the acquisition cost minus depreciations minus any previous impairment losses.

The term recoverable amount in IAS 36 is synonymous with replacement value in M3 BE.

Outcome

The company's fixed assets are carried at no more than their recoverable amount.

You can review the changes resulting from the impairment of each asset per period by selecting option 11='Display FA value per period' for the value type of the replacement value in 'Fixed Asset. Connect Value Types' (FAS003/B). The option starts 'FA Value. Display Period' (FAS220).

Amounts for value types connected to the fixed assets in 'Fixed Asset. Connect Value Types' (FAS003) are updated.

The general ledger is updated with the extraordinary depreciation: one credit transaction (based on accounting rule FA30–520) and one debit transaction (based on accounting rule FA30–530).

Before You Start

• In 'Fixed Asset. Open' (FAS001/F), you must have connected a cost of capital method to each fixed asset to be included in the impairment test.
• This cost of capital method must be defined in 'Cost of Capital Method. Open' (FAS090). The purpose of the method is a) to determine the value type of the replacement value, and b) to determine the percentage by which the replacement value is reduced when you perform the annual run in 'Annual Run. Perform' (FAS190). Note: If you have not specified the percentage as a fixed value, M3 BE retrieves the percentage from the index table connected to the method in 'Index Table. Open' (CRS481). M3 BE calculates the difference between the index of the previous year and the index of the current year as the percentage to use.
• You must have defined a column template that determines that only fixed assets with a carrying amount greater than the recoverable amount are printed in 'Fixed Asset. Print Values' (FAS510). You define the template in 'Column Template FA Value. Open' (FAS045) and select it when you create a report for an impairment test in (FAS510). The column template must contain at least a) one formula for the carrying amount, and b) a specification of where to find the recoverable amount. (See the following items.)
• The formula for the carrying amount must be defined according to this model or an equivalent: &1 (Acquisition value type from the first depreciation type selected for the fixed asset) minus &2 (Accumulated and recorded depreciation from previous year) minus &3 (Recorded depreciation year-to-date) minus &5 (Extraordinary depreciation) is greater than (>) the limit value, that is, the current recoverable amount. You can select specific value types instead of referring to the dynamic value types preceded by the & sign.
• The recoverable amount can be retrieved in one of three ways:
  • Use dynamic value type &7 (Value type for the replacement value as defined in the cost of capital method selected for the fixed asset)
  • Enter a specific amount
  • Select a specific value type for the replacement value. In case there are several depreciation types for the fixed asset, only the value type that matches the first depreciation type is included in the calculation
• To update the fixed asset with any extraordinary depreciation in 'FA Depreciation. Create Extraordinary' (FAS140), the value type for extraordinary depreciation must be defined in 'Settings – Extraordinary Depreciation' (FAS920).
• The following accounting rules for extraordinary depreciation of fixed assets must be defined in 'Accounting Rule. Open' (CRS395): FA30–520 and FA30–530.

Follow These Steps

1. Identify Recoverable Amounts

   Identify the recoverable amount as either the net selling price or the value in use for each fixed asset, whichever is greater. The calculations and decisions are made outside of M3 when you get an indication that the recoverable amounts have been changed or when you perform the company's year-end routines.

2. Update Recoverable Amounts in M3

   Update the recoverable amount in one of the following ways:

   • Run 'Annual Run. Open' as part of your year-end routines to calculate the replacement cost based on the cost of capital method selected for the fixed asset
   • Update the replacement value manually for each fixed asset in 'Fixed Asset. Connect Value Types' (FAS003).

3. Identify Fixed Assets to Be Impaired

   Identify the fixed assets whose carrying amount is now higher than the recoverable amount, by creating a report in 'Fixed Asset. Print Values' (FAS510). The report must be based on a column template designed for impairment tests (refer to the Before Starting section). Based on the report, decide whether or not an impairment in the form of an extraordinary depreciation is necessary.

   You can also use the fixed asset balance file, 'Fixed Asset Display' (FAS200), to display the carrying amount and the replacement value online.

4. Depreciate Carrying Amounts

   Record the impairment by creating an extraordinary depreciation in 'FA Depreciation. Create Extraordinary' (FAS140) for each fixed asset affected. You enter the new recoverable amount in the 'Replacement value' field.

   You can reverse the extraordinary depreciation, either partially or entirely, by entering a negative value in the 'Extraordinary depreciation' field in (FAS140). However, the reversed depreciation cannot be greater than the original depreciation.