Asset Impairment

1.What does 'Impairment' mean?

An asset is impaired when its carrying amount exceeds its recoverable amount.

2. What is a 'Carrying amount'?

The carrying amount represents the amount at which an asset is recognized in the balance sheet after deducting accumulated depreciation and accumulated impairment losses.

3. What does the 'Recoverable amount' represent?

The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use.

4. What is the 'Fair Value' of an asset ?

Fair Value represents the amount obtainable from the sale of an asset in a bargained transaction between knowledgeable, willing parties.

5. What is the 'Value in Use' of an asset ?

Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.

6. What does a Cash-Generating Unit represent?

A cash-generating unit 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.

7. How to identify an asset that may be impaired?

At each balance sheet date, review all assets to look for any indication that an asset may be impaired (its carrying amount may be in excess of the greater of its net selling price and its value in use). IAS 36 has a list of external and internal indicators of impairment. If there is an indication that an asset may be impaired, then you must calculate the assets recoverable amount. [IAS 36.9]

The recoverable amounts of the following types of intangible assets should be measured annually whether or not there is any indication that it may be impaired. In some cases, the most recent detailed calculation of recoverable amount made in a preceding period may be used in the impairment test for that asset in the current period: [IAS 36.10]

1. an intangible asset with an indefinite useful life.1. an intangible asset not yet available for use.1. goodwill acquired in a business combination.

8. How to set up Impairments?

A separate document on Impairments set up will be noted here soon.

9. What is the impairments workflow in Oracle Assets ?

1. Create Impairment Record:

1. Navigate to Assets responsibility: (N) Assets> Impairment > Create and Post

2. Click the "New Impairment" button to launch Web ADI for entering impairments.

3. Enter Impairment header information: Book: Choose book from the list of values (double click the field to invoke LOV) Impairment Name: Enter impairment name for reference Impairment Date: Enter a date in the current open period User Entered date: For reference only

4. Enter Impairment detail information: Status: Set the status to "Preview" from the LOV for the "Preview impairments" program to process the row, if it is left at "New" then the impairment preview will not be processed. Asset Number: If the impairment information is only for a specific asset number then select the asset. This can be done by entering the asset number value or double click the field to invoke LOV. Cash-Generating Unit (CGU): If the Impairment is made at the Cash-Generating Unit level then this will have to be selected. This can be done by entering it directly or double click the field to invoke LOV. *Restriction: Use CGU or Asset Number but never both. Net Selling Price/Value in Use: Enter net selling price and/or Value in Use Impairment Loss: Enter the amount of impairment loss only if the Net Selling Price and the Value in Use are null. Goodwill Amount: Optionally enter goodwill amount and goodwill asset number for goodwill treatment.

5. Use the top menu to click Oracle > Upload to view upload parameters, click the "Upload" button to submit the concurrent program.

II) Update Impairments:

1. Navigate to Assets responsibility: (N) Assets> Impairment > Create and Post

2. Query for existing Impairments by: Book, Cash-Generating Unit, Impairment Name, Asset Number, Impairment Date, Status.

3. For each Impairment line, the "Update Impairment" button can be pressed to open WebAdi spreadsheet for updating impairments.

4. Perform necessary changes for the Impairment line.

5. Use the top menu to click Oracle > Upload to view upload parameters, click the "Upload" button to submit the concurrent program.

III) Upload the Impairments:

1. Navigate to Assets responsibility: (N) Assets> Impairment > Create and Post

2. Query for existing Impairments by: Book, Cash-Generating Unit, Impairment Name, Asset Number, Impairment Date, Status. The search needs to be made for impairments with the status "Previewed".

3. Use "Select" check box to pick the impairments that needs to be posted.

4. Press "Post" button.

IV) Rollback Impairments:

1. Navigate to Assets responsibility: (N) Assets> Impairment > Create and Post

2. Query for existing Impairments by: Book, Cash-Generating Unit, Impairment Name, Asset Number, Impairment Date, Status. The search needs to be made for impairments with the status "Posted".

3. Use "Select" check box to pick the impairments that need to be rolled back.

4. Press "Rollback" button.

V) Delete Impairments:

1. Navigate to Assets responsibility: (N) Assets> Impairment > Create and Post

2. Query for existing Impairments by: Book, Cash-Generating Unit, Impairment Name, Asset Number, Impairment Date, Status. The search needs to be made for impairments with status different than "Posted".

3. Use "Select" check box to pick the impairments that need to be deleted.

4. Press "Delete" button.

10. Can impairments be posted for a closed period or if depreciation has been run?

Impairments can be only posted in the current FA open period. Also impairments can be posted if depreciation hasn't been run or was rolled back.

11. For the same Impairment record, can the Asset Number and the Cash-Generating Unit be used?

For a distinct Impairment record, either the Asset Number or the Cash-Generating Unit can be used, but never both for the same transaction.If the Asset Number is used, then the impairment information will be provided for that specific asset.If the Cash-Generating Unit is used, then the impairment information will be distributed to all the assets which belong to the Cash-Generating Unit, in proportion to the cost of each asset.

12. Will Impairments with status "New" be posted?

Impairments with status "New" will be skipped for posting even if they have been selected to be posted. Only impairments with status "Previewed" will be successfully posted.

13. Can Impairments that were posted in a previous period be rolled back?

No, Impairments can be rolled back only if they were posted in the current open period. Also, depreciation needs to be rolled back for being able to perform a rollback impairments transaction.

14. Can posted Impairments be deleted ?

Impairments can be deleted only if their status is different from "Posted". If the Impairments status is "Posted" then it is necessary to rollback first and then the delete process can be performed.

15. In what period, the Impairment effects regarding depreciation calculation will occur?

The effects of the Impairment transaction against depreciation calculation will be available only for the next period.For example if the impairment transaction is made on Jan-07, the new depreciation calculation based on the new NBV will start from FEB-07.The reason of doing that is IAS regulation that is saying that Impairment effects on Depreciation Expense should occure from the following period of Impairment transaction.

16. How many Impairment transactions are allowed to be posted in a period for an asset?

Only one Impairment transaction can be posted for one asset in a single period. Reason: in the moment that an Impairment transaction is posted to an asset the system is calculating the Depreciation amount for the current period and inserts it on the Depreciation tables. This calculation process has been explained on question 15. Now when trying to post the second Impairment transaction, the system will find that Depreciation has been already run and sets the second Impairment status to DEPRECIATION FAILED.

Note: In 11i once depreciation is run for an asset/book, you cannot perform any transaction on the asset/book unless Depreciation is rollbacked.

For the Impairment case depreciation cannot be rollbacked and the following actions are recommended: I. Rollback the Impairment transaction from Create and Post Impairment form. II. Delete the Impairment transaction that was wrongly added. III. Create new Impairment transaction with the correct data and post it to asset