ASBE No. 08
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Impairment of Assets
Impairment of Assets is part of the Chinese Accounting Standards for Business Enterprises (ASBE).
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Conceptual Framework Linkage
Ensuring assets are not carried above their recoverable amount
ASBE No. 8 governs the IMPAIRMENT of FIXED assets, CONSTRUCTION in PROGRESS, INTANGIBLE assets, GOODWILL, LONG-term equity INVESTMENTS (under the EQUITY method), and BIOLOGICAL assets CARRIED at cost – ENSURING these ASSETS are NOT carried ABOVE their RECOVERABLE amount. This Standard CONTAINS the SINGLE most FREQUENTLY cited ASBE-specific DIVERGENCE from international STANDARDS: the ABSOLUTE prohibition on REVERSING impairment LOSSES once RECOGNISED (Section 8).
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Scope
Long-lived assets, excluding inventories and financial assets
This Standard applies to the ASSET categories LISTED above – EXCLUDING inventories (GOVERNED separately by ASBE No. 1, WHICH permits REVERSAL – see the COMPANION poster), investment PROPERTY measured UNDER the fair VALUE model, deferred TAX assets, and FINANCIAL assets (governed SEPARATELY by ASBE No. 22).
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Indicators of Impairment
External and internal signs that an asset may be impaired
At EACH Balance SHEET date, an ENTERPRISE assesses WHETHER any INDICATION exists that an ASSET may be IMPAIRED – EXTERNAL indicators (SIGNIFICANT declines in MARKET value, ADVERSE changes in the TECHNOLOGICAL, market, ECONOMIC, or LEGAL environment) and INTERNAL indicators (EVIDENCE of OBSOLESCENCE or PHYSICAL damage, SIGNIFICANT changes in HOW an asset is USED). WHERE such an INDICATOR exists, the ASSET'S recoverable AMOUNT is ESTIMATED.
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Recoverable Amount – the Higher of Two Values
Fair value less costs to sell, or value in use
RECOVERABLE amount is the HIGHER of an ASSET'S FAIR value LESS costs to SELL, and its VALUE IN USE (the PRESENT value of the FUTURE cash FLOWS expected to be DERIVED from the asset's CONTINUING use and EVENTUAL disposal) – CONSISTENT with IAS 36's OWN definition internationally.
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Recognising an Impairment Loss
Carrying amount less recoverable amount
WHERE an ASSET'S carrying AMOUNT EXCEEDS its RECOVERABLE amount, an IMPAIRMENT loss is RECOGNISED for the DIFFERENCE, REDUCING the asset's CARRYING amount to its RECOVERABLE amount, WITH the loss RECOGNISED immediately in the INCOME STATEMENT.
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Cash-Generating Units
Testing groups of assets where individual cash flows can't be isolated
WHERE an ASSET does NOT generate CASH inflows LARGELY independently of OTHER assets, IMPAIRMENT is assessed at the LEVEL of the SMALLEST identifiable GROUP of assets that DOES generate LARGELY independent cash INFLOWS – a "CASH-GENERATING UNIT" (CGU) – CONSISTENT with IAS 36's OWN CGU concept internationally.
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Goodwill – Mandatory Annual Testing, Allocated to CGUs
Tested annually regardless of impairment indicators
GOODWILL arising from a BUSINESS combination (ASBE No. 20) is ALLOCATED to the CASH-generating UNITS (or GROUPS of units) EXPECTED to BENEFIT from the COMBINATION'S synergies, and TESTED for IMPAIRMENT AT LEAST ANNUALLY, REGARDLESS of WHETHER any INDICATOR of impairment EXISTS – CONSISTENT with the IMPAIRMENT-only approach (NO systematic AMORTISATION) applied under IFRS 3/IAS 36 internationally, a POINT of GENUINE ALIGNMENT with IFRS, in CONTRAST to Japan GAAP's OWN mandatory GOODWILL amortisation requirement.
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THE KEY DIVERGENCE – No Reversal of Impairment Losses
Once recognised, an impairment loss is permanent
ONCE an IMPAIRMENT loss is RECOGNISED for an ASSET within THIS Standard's scope, it CANNOT be REVERSED in a SUBSEQUENT period – EVEN if the RECOVERABLE amount SUBSEQUENTLY INCREASES (e.g. due to a MARKET recovery or IMPROVED operating PERFORMANCE). This is a GENUINELY significant, WIDELY-cited DIVERGENCE from IAS 36, which PERMITS reversal of IMPAIRMENT losses for ASSETS OTHER than goodwill WHERE the CIRCUMSTANCES that CAUSED the ORIGINAL impairment have CHANGED.
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Why ASBE Prohibits Reversal
Preventing earnings management through impairment timing
The POLICY rationale WIDELY cited for this PROHIBITION reflects a CONCERN that PERMITTING reversal COULD create an OPPORTUNITY for EARNINGS management – an ENTITY might be TEMPTED to RECOGNISE an impairment LOSS in a WEAK period, then REVERSE it LATER to BOOST reported PROFIT in a STRONGER period, WITHOUT any GENUINE underlying ECONOMIC change having OCCURRED. PROHIBITING reversal REMOVES this INCENTIVE, at the COST of SOME reduced RESPONSIVENESS to GENUINE asset value RECOVERIES.
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Worked Example – Recognising an Impairment Loss
Writing an asset down to its recoverable amount
Example: A production facility affected by a market downturn
A company's production facility has a carrying amount of RMB 40,000,000. Following a significant market downturn, the estimated recoverable amount (the higher of value in use and fair value less costs to sell) is RMB 28,000,000.
The company recognises an IMPAIRMENT loss of RMB 40,000,000 − RMB 28,000,000 = RMB 12,000,000, reducing the facility's carrying amount to RMB 28,000,000, with the loss recognised immediately in the INCOME STATEMENT.
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Worked Example – a Later Recovery That Cannot Be Reversed
The recovered value simply isn't recognised
Example: A market recovery in a later period
Continuing the prior example, two years later the market recovers strongly, and the facility's recoverable amount is now estimated at RMB 36,000,000 – well above its current carrying amount (after depreciation) of RMB 24,000,000.
DESPITE the CLEAR recovery in RECOVERABLE amount, the company CANNOT reverse ANY portion of the PRIOR impairment LOSS – the facility CONTINUES to be CARRIED at its (depreciated) POST-impairment amount, WITH the RMB 12,000,000-plus of RECOVERED value simply going UNRECOGNISED, a DIRECT consequence of this Standard's NO-REVERSAL rule.
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Disclosure Requirements
What ASBE No. 8 requires
Impairment losses recognised during the period, by class of asset and cash-generating unitBasis for estimating recoverable amount (fair value less costs to sell, or value in use)Goodwill impairment testing results and key assumptions used
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Critical Judgments & Estimates
Where judgement matters most
SIGNIFICANT JUDGEMENTS
Identifying the appropriate cash-generating unit for testing purposesWhether an impairment indicator genuinely exists
SIGNIFICANT ESTIMATES
Future cash flow projections and discount rate underlying value in useFair value less costs to sell estimates
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Relationship to IAS 36 and US GAAP
Comparison – ASBE 8 vs IAS 36 vs US GAAP (ASC 360)
FeatureASBE 8IAS 36US GAAP
Impairment reversal (non-goodwill)NOT permittedPERMITTED where circumstances changeNOT permitted for held-and-use assets – aligned with ASBE
Goodwill treatmentImpairment-only, no amortisationImpairment-only – convergedImpairment-only – converged
ON the NO-REVERSAL rule, ASBE is GENUINELY aligned with US GAAP AGAINST IAS 36 – a USEFUL, THREE-way comparison POINT showing this is NOT simply "China DIVERGING from the INTERNATIONAL standard," but RATHER a CASE where TWO major FRAMEWORKS (US GAAP and ASBE) SHARE the SAME conservative APPROACH, WHILE IFRS takes a MORE flexible POSITION.
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Statement Mapping
Where every impairment event lands
EventStatement(s) affectedNotes
Impairment lossBS ISRecognised immediately, permanent – no future reversal
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Related Standards
Cross-reference map
StandardConnection
ASBE No. 1Inventories – governs the DIFFERENT, reversal-permitted write-down treatment for inventories, outside this Standard's scope
ASBE No. 20Business Combinations – supplies the goodwill this Standard requires to be tested annually
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Quick-Reference Glossary
Recoverable amount
The higher of an asset's fair value less costs to sell and its value in use.
Cash-generating unit (CGU)
The smallest identifiable group of assets that generates cash inflows largely independent of other assets, used as the level for impairment testing where individual assets can't be assessed alone.
Financial statement key (Chinese GAAP / ASBE terminology)
BS Balance Sheet (资产负债表)
IS Income Statement (利润表)
SCOE Statement of Changes in Owners' Equity (所有者权益变动表)
CFS Cash Flow Statement (现金流量表)
History & Development
2006-02
ASBE No. 8 Impairment of Assets issued
Operative for periods beginning on or after 1 February 2007