5.3 Impairment of cash generating assets and non-cash generating assets

The impairment of cash-generating assets and non-cash-generating assets refers to the recognition and measurement of a decrease in their carrying value due to a decline in their recoverable amount. Impairment occurs when the carrying amount of an asset exceeds its recoverable amount, which is the higher of its fair value less costs to sell or its value in use.

1. Cash-Generating Assets: Cash-generating assets are assets that primarily generate cash flows independently of other assets. These typically include property, plant, and equipment, investment properties, intangible assets, and goodwill. The impairment of cash-generating assets is assessed by comparing their carrying amount with their recoverable amount. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized.
2. Non-Cash-Generating Assets: Non-cash-generating assets are assets that do not generate independent cash flows, such as inventory or assets held for sale. The impairment of non-cash-generating assets is assessed by comparing their carrying amount with their net selling price. If the carrying amount exceeds the net selling price, an impairment loss is recognized.

The impairment assessment process generally involves the following steps:

1. Identification of Assets: The entity identifies the assets or cash-generating units (CGUs) for which impairment testing is required. A CGU is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
2. Determination of Recoverable Amount: The entity determines the recoverable amount of the assets or CGUs. For cash-generating assets, the recoverable amount is the higher of the fair value less costs to sell or the value in use. For non-cash-generating assets, the recoverable amount is the net selling price.
3. Comparison of Carrying Amount and Recoverable Amount: The carrying amount of the assets or CGUs is compared with their recoverable amount. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized.
4. Recognition and Measurement of Impairment Loss: The impairment loss is recognized in the income statement and is typically calculated as the difference between the carrying amount and the recoverable amount. The asset’s carrying amount is reduced, and the impairment loss is recognized as an expense.
5. Reversal of Impairment Loss: If there is a subsequent increase in the recoverable amount of an impaired asset or CGU, the impairment loss can be reversed up to the original carrying amount. However, the reversal is subject to certain criteria, such as changes in economic conditions and future cash flow expectations.