ASPE Section 3063
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Impairment of Long-lived Assets
Impairment of Long-lived Assets is part of the Accounting Standards for Private Enterprises (ASPE).
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Conceptual Framework Linkage
A two-step model borrowed from the US GAAP tradition
ASPE Section 3063 governs the RECOGNITION and MEASUREMENT of IMPAIRMENT losses FOR long-LIVED tangible AND finite-LIFE intangible ASSETS. GENUINELY distinctively, ASPE applies a TWO-STEP impairment TEST STARTING with an UNDISCOUNTED cash FLOW recoverability SCREEN – CLOSELY mirroring the US GAAP ASC 360 impairment MODEL, RATHER than IAS 36'S direct FAIR-value/value-in-USE comparison (Section 4).
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Scope
Tangible assets and finite-life intangibles
This Section applies TO property, PLANT, and EQUIPMENT, and FINITE-life intangible ASSETS – GOODWILL and INDEFINITE-life intangible ASSETS are TESTED for IMPAIRMENT under a SEPARATE approach WITHIN Section 3064 (see the COMPANION poster).
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Indicators of Impairment
Testing only triggered by evidence of decline
IMPAIRMENT testing is TRIGGERED only WHEN events OR changes in CIRCUMSTANCES indicate that an ASSET'S carrying AMOUNT may NOT be recoverable – SUCH as a SIGNIFICANT decrease IN market value, ADVERSE changes IN the asset'S USE or PHYSICAL condition, OR a SIGNIFICANT decline IN the enterprise'S OWN operating PERFORMANCE.
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THE TWO-STEP TEST – Step One, the Recoverability Screen
Comparing carrying amount to undiscounted future cash flows
STEP ONE compares the ASSET'S (or asset GROUP'S) carrying AMOUNT to the UNDISCOUNTED sum OF its EXPECTED future NET cash FLOWS – IF the CARRYING amount is LESS than or EQUAL to this UNDISCOUNTED total, NO impairment IS recognized, and the TEST stops HERE, REGARDLESS of the ASSET'S current FAIR value.
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THE TWO-STEP TEST – Step Two, Measuring the Impairment Loss
Fair value comparison, only if Step One fails
ONLY WHERE the CARRYING amount EXCEEDS the UNDISCOUNTED future CASH flows (i.e. STEP one FAILS) does the ENTERPRISE proceed to STEP two – MEASURING the IMPAIRMENT loss as the AMOUNT by WHICH the ASSET'S carrying AMOUNT exceeds ITS fair VALUE.
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Why the Undiscounted Screen Matters
Producing fewer impairments than a direct fair value comparison would
BECAUSE step ONE uses UNDISCOUNTED cash FLOWS (RATHER than a DISCOUNTED, present-VALUE comparison to FAIR value AS IAS 36 REQUIRES directly), an ASSET can GENUINELY have a LOW current FAIR value WHILE STILL passing the RECOVERABILITY screen – SIMPLY because the SUM of its UNDISCOUNTED future CASH flows exceeds ITS carrying AMOUNT. THIS means ASPE'S two-STEP model can GENUINELY produce FEWER impairments THAN IAS 36 WOULD for the SAME underlying FACTS – a MEANINGFUL, practically SIGNIFICANT divergence, RATHER than a MERELY mechanical ONE.
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No Reversal of Impairment Losses
Once recognized, an impairment loss is permanent
ONCE an IMPAIRMENT loss IS recognized, it IS NOT subsequently REVERSED, EVEN if the CIRCUMSTANCES that CAUSED it LATER improve – CONSISTENT with the US GAAP TRADITION this Section'S TWO-step model DRAWS from, and IN CONTRAST to IAS 36'S own REVERSAL permission FOR assets OTHER than goodwill.
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Asset Groups
Testing at the lowest level of independently identifiable cash flows
WHERE an INDIVIDUAL asset does NOT generate CASH flows LARGELY independent OF other ASSETS, IMPAIRMENT is TESTED at the LEVEL of the "ASSET GROUP" – the LOWEST level FOR which IDENTIFIABLE cash FLOWS are LARGELY independent OF the cash FLOWS of OTHER assets and LIABILITIES.
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Worked Example – Passing the Recoverability Screen
No impairment, despite a lower fair value
Example: An asset with strong future cash flows but soft fair value
A piece of specialized equipment has a carrying amount of $900,000. Its expected undiscounted future net cash flows total $1,050,000, but its current fair value (based on market comparables) is only $750,000.
SINCE the CARRYING amount ($900,000) is LESS than the UNDISCOUNTED cash FLOWS ($1,050,000), STEP one PASSES – NO impairment is RECOGNIZED, DESPITE the ASSET'S fair VALUE ($750,000) being LOWER than ITS carrying AMOUNT. UNDER IAS 36'S direct FAIR-value comparison, THIS same FACT pattern WOULD likely HAVE triggered an IMPAIRMENT loss.
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Worked Example – Failing the Screen and Measuring the Loss
Proceeding to Step Two once the screen fails
Example: An asset whose future cash flows have genuinely declined
A production line has a carrying amount of $1,200,000. Its expected undiscounted future net cash flows total only $950,000, and its fair value is determined to be $800,000.
SINCE the CARRYING amount ($1,200,000) EXCEEDS the UNDISCOUNTED cash FLOWS ($950,000), STEP one FAILS, PROCEEDING to STEP two: the IMPAIRMENT loss = $1,200,000 − $800,000 (FAIR value) = $400,000, recognized IMMEDIATELY in NET income.
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Disclosure Requirements
What Section 3063 requires
Description of the impaired asset or asset group, and the events/circumstances leading to impairmentAmount of the impairment loss and how fair value was determinedSegment or line item in which the impaired asset is included
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Critical Judgments & Estimates
Where judgment matters most
SIGNIFICANT JUDGMENTS
Whether indicators of impairment genuinely exist, triggering the testDetermining the appropriate asset group for testing
SIGNIFICANT ESTIMATES
Undiscounted future net cash flows for Step OneFair value for Step Two, where the recoverability screen fails
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Relationship to IAS 36
Comparison – ASPE Section 3063 vs IAS 36
FeatureASPE Section 3063IAS 36
Test structureTwo-step, undiscounted screen firstOne-step, direct recoverable amount comparison
Reversal of impairment lossesNOT permittedPermitted, except for goodwill
TWO genuinely SIGNIFICANT divergences – the UNDISCOUNTED screening TEST and the NO-reversal rule TOGETHER mean ASPE'S impairment OUTCOMES can DIFFER meaningfully FROM the SAME facts ANALYZED under IAS 36.
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Statement Mapping
Where every impairment event lands
EventStatement(s) affectedNotes
Impairment loss recognizedBS ISPermanent – no subsequent reversal permitted
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Related Standards
Cross-reference map
SectionConnection
Section 3061Property, Plant and Equipment – the primary asset category this Section's impairment testing applies to
Section 3064Goodwill and Intangible Assets – governs the separate impairment approach for goodwill and indefinite-life intangibles
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Quick-Reference Glossary
Recoverability screen
Step One of ASPE's impairment test, comparing an asset's carrying amount to its undiscounted future net cash flows.
Asset group
The lowest level for which cash flows are largely independent of other assets and liabilities, used as the basis for impairment testing.
Financial statement key (ASPE terminology)
BS Balance Sheet
IS Income Statement
SRE Statement of Retained Earnings / Statement of Changes in Equity
SCF Cash Flow Statement