Oracle Cloud/Fusion Asset Impairment Process

IAS 36 addresses accounting and reporting for impairment of assets. The accounting standard provide that assets should not to be carried at more than their recoverable amounts. Requires entities to carry out impairment tests for all their tangible and intangible assets, other than assets in certain specified categories (for example inventories, construction contract assets, financial assets and non-current assets classified as held for sale) on each balance sheet date. The basic mechanism for accounting impairment is as follows: Companies must measure an asset's recoverable amount (the higher of the asset's or cash generating unit's fair value, less costs to sell, and its value in use) and compare that to the book value. The value in use equals the future cash flows to be generated by the asset or the cash generating unit, discounted at a current market risk-free return rate, adjusted for the uncertainty (that is, the risk) inherent to the asset. If the book value is higher than the recoverable amount, then impairment loss needs to be recognized for the asset or Cash Generating Unit. If the book value is less than the recoverable amount, then impairment loss need not be recognized for the asset or Cash Generating Unit. If asset has previously impaired, part of the previous impairment loss has to be reversed. Carrying amount: Carrying amount is the amount at which an asset is recognized after deducting any accumulated depreciation (amortization) and accumulated impairment losses thereon. Cash-generating Unit: 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. Costs of disposal: Costs of disposal are incremental costs directly attributable to the disposal of an asset or cash-generating unit, excluding finance costs and income tax expense. Depreciable amount: Depreciable amount is the cost of an asset, or other amount substituted for cost in the financial statements, less its residual value. Depreciation: Depreciation (Amortization) is the systematic allocation of the depreciable amount of an asset over its useful life. Impairment Loss: An impairment loss is the amount by which the carrying amount of an asset or a cashgenerating unit exceeds its recoverable amount. Recoverable Amount: The recoverable amount of an asset or a cash-generating unit is the higher of Net Selling Price and its Value in Use. Net Selling Price: The amount obtainable from the sale of an asset in a bargained transaction between knowledgeable, willing parties less the costs of disposal Value in Use: Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit. Useful Life: Useful life is either: a) The period of time over which an asset is expected to be used by the entity; or b) The number of production or similar units expected to be obtained from the asset by the entity. Net Book Value: Asset cost minus depreciation reserve and impairment reserve. Historical Net Book Value: The carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the asset in prior accounting periods. Asset cost minus depreciation reserve. Impairment Loss Reversal Gain: An impairment loss reversal is the amount by which the recoverable amount or historic net book value (whichever is less) of an asset or a cash-generating unit exceeds its carrying amount IAS36 Impairments applies to all assets except: [IAS 36.2] Inventories (see IAS 2) Assets arising from construction contracts (see IAS 11) Deferred tax assets (see IAS 12) Assets arising from employee benefits (see IAS 19) Financial assets (see IAS 39) Investment property carried at fair value (see IAS 40) Certain agricultural assets carried at fair value (see IAS 41) Insurance contract assets (see IFRS 41) Assets held for sale (see IFRS 5) Therefore, IAS 36 applies to (among other assets): Land Buildings Machinery and Equipment Investment Property carried at cost Intangible assets Goodwill Investments in subsidiaries, associates and joint ventures Assets carried at revalued amounts under IAS 16 and IAS 38