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Fixed Assets -Impairment FAQ

1. What does 'Impairment' mean ?
A.An asset is impaired when its carrying amount exceeds its recoverable amount.
2. What is a 'Carrying amount' ?
A.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 ?
A.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 ?
A.Fair Value represents the amount obtainable from the sale of an asset in a bargained transaction between knowledgeable, willing parties.
 What is the 'Value in Use' of an asset ?
A.Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.
What does a Cash-Generating Unit represent ?
A.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.
 How to identify an asset that may be impaired ?
A.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 asset's recoverable amount.
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:
* an intangible asset with an indefinite useful life.
* an intangible asset not yet available for use.
* goodwill acquired in a business combination.
 Can impairments be posted for a closed period or if depreciation has been run ?
A.Impairments can be only posted in the current FA open period. Impairments can be posted if depreciation hasn't been run or was rolled back.
12. For the same Impairment record, can the Asset Number and the Cash-Generating Unit be used ?
A.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.
13. Will Impairments with status "New" be posted ?
A.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.
Can Impairments that were posted in a previous period be rolled back ?
A.No. Impairments can be rolled back only if they were posted in the current open period. Also, depreciation needs to be rolled back to perform a rollback impairments transaction.
Can posted Impairments be deleted ?
A.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.
In what period will the Impairment effects regarding depreciation calculation occur ?
A.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 for doing that is IAS regulations stating that Impairment effects on Depreciation Expense should occur from the following period of Impairment transaction.
 How many Impairment transactions are allowed to be posted in a period for an asset ?
A.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 into the Depreciation tables. This calculation process has been explained on question 16. 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 rolled back.
For the Impairment case when depreciation cannot be rolled back, 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.
.
It will be necessary to work out the appropriate cost and reserve for the conversion date and, if necessary, 

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