AASB 128 - Investments in Associates - July 2004
Impairment LossesImpairment Losses
Start here
Get a plain-English read of Impairment Losses
Turn the raw legal text into a practical explanation grounded in AASB 128 - Investments in Associates - July 2004.
Impairment Losses
31 After application of the equity method, including recognising the associate’s losses in accordance with paragraph 29, the investor applies the requirements of AASB 139 to determine whether it is necessary to recognise any additional impairment loss with respect to the investor’s net investment in the associate.
32 The investor also applies the requirements of AASB 139 to determine whether any additional impairment loss is recognised with respect to the investor’s interest in the associate that does not constitute part of the net investment and the amount of that impairment loss.
33 Because goodwill that forms part of the carrying amount of an investment in an associate is not separately recognised, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in AASB 136 Impairment of Assets. Instead, the entire carrying amount of the investment is tested for impairment in accordance with AASB 136 as a single asset, by comparing its recoverable amount (higher of value in use and fair value less costs to sell) with its carrying amount, whenever application of the requirements in AASB 139 indicates that the investment may be impaired. An impairment loss recognised in those circumstances is not allocated to any asset, including goodwill, that forms part of the carrying amount of the investment in the associate. Accordingly, any reversal of that impairment loss is recognised in accordance with AASB 136 to the extent that the recoverable amount of the investment subsequently increases. In determining the value in use of the investment, an entity estimates:
(a) its share of the present value of the estimated future cash flows expected to be generated by the associate, including the cash flows from the operations of the associate and the proceeds on the ultimate disposal of the investment; or
(b) the present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal.
Under appropriate assumptions, both methods give the same result.
34 The recoverable amount of an investment in an associate is assessed for each associate, unless the associate does not generate cash inflows from continuing use that are largely independent of those from other assets of the entity.