IPSAS 21 Impairment of Non-Cash-Generating Assets

IPSAS 21 Impairment of Non-Cash-Generating Assets is the current, active standard issued by the IPSASB for assessing and measuring impairment of long-lived assets that are not cash-generating – using recoverable service amount or fair value less costs to sell, and reversing impairment when the cause has reversed. Effective 1 January 2006.

IPSAS 21 addresses the public-sector gap left by IAS 36, which focuses on cash-generating units. It prescribes recoverable service amount as the primary measurement, with fair value less costs to sell as an alternative, and adds public-sector guidance on asset redesignation and restoration obligations.

Objective, Scope & Definitions (paras. 1–14)

Objective & scope

Prescribes the procedures an entity applies to determine whether a NON-CASH-GENERATING asset is impaired, ensures impairment losses are recognized, specifies when to reverse them, and prescribes disclosures.

Inventories (IPSAS 12) Binding arrangement assets / contract-cost assets (IPSAS 47) Financial assets within IPSAS 41's scope Investment property measured using the current value model (IPSAS 16) – already at fair value, so impairment is automatically captured Assets (disposal groups) classified as held for sale (IPSAS 44)

Cash-generating assets are impairment-tested under the SISTER standard, IPSAS 26, instead.

Key definitions (para. 14)

Impairment

A loss in future economic benefits or service potential, OVER AND ABOVE the systematic recognition of that loss through depreciation.

Recoverable service amount

The HIGHER of a non-cash-generating asset's fair value less costs to sell, and its value in use.

Value in use (non-cash-generating asset)

The present value of the asset's REMAINING SERVICE POTENTIAL.

For impairment purposes, GOODWILL is always treated as a CASH-GENERATING asset – assessed under IPSAS 26, never this Standard (para. 20A).

Cash-Generating vs Non-Cash-Generating Assets (paras. 16–21)

The classification test

A cash-generating asset is one held with the PRIMARY OBJECTIVE of generating a commercial return – deployed the way a profit-oriented entity would deploy it, intended to earn a return reflecting the risk of holding it. An asset can be "cash-generating" even if it breaks even in a given period, and vice versa.

Default presumption: given most public sector entities' overall objectives, the presumption is that assets are NON-CASH-GENERATING, and IPSAS 21 applies – cash-generating classification is the exception, not the rule (para. 20).

Mixed-use assets – the significance test

A public hospital: 9 of 10 wards fee-paying (commercial), 1 non-fee-paying, sharing joint facilities

The entity evaluates the SIGNIFICANCE of the non-cash-generating component to the arrangement as a whole.

Since the non-cash-generating component (1 ward) is INSIGNIFICANT relative to the whole, the entity applies IPSAS 26 (cash-generating) to the whole asset rather than IPSAS 21 (para. 19).

Where cash flows genuinely CANNOT be distinguished and the commercial use is merely incidental (e.g. a medical waste plant mostly serving public hospitals, occasionally treating private hospital waste on a commercial basis), the asset stays non-cash-generating (para. 18).

Identifying an Asset That May Be Impaired (paras. 24–34)

Minimum indications to assess at EACH reporting date (para. 27)

EXTERNAL SOURCES

Cessation or near-cessation of demand/need for services provided by the asset Significant long-term adverse changes in technological, legal, or government policy environment

INTERNAL SOURCES

Evidence of physical damage Significant long-term adverse changes in extent/manner of use – idle assets, restructuring/discontinuation plans, early disposal plans, useful life reassessed as finite A decision to halt construction before completion Internal reporting evidence the asset's service performance is/will be significantly worse than expected

Threshold nuances

An intangible asset with an INDEFINITE useful life, or not yet available for use, is tested ANNUALLY regardless of indications – assessed at a consistent time each year (para. 26A) A halt in construction: consider whether it's just DELAYED/POSTPONED with resumption intended, vs work that will not be completed in the foreseeable future (para. 31) Higher operating/maintenance costs than budgeted, or lower output than expected, ARE internal-reporting impairment indicators (para. 32) MATERIALITY applies – if recoverable service amount was previously significantly higher than carrying amount and nothing has changed, re-estimation isn't required (para. 33)

Even where no impairment loss is ultimately recognized, an impairment indication may still signal that useful life, depreciation method, or residual value needs reviewing (para. 34).

Measuring Recoverable Service Amount (paras. 35–39A)

The shortcut – you don't always need both

Recoverable service amount = HIGHER of (fair value less costs to sell) and (value in use)

If EITHER amount already exceeds carrying amount, the asset is NOT impaired – no need to determine the other (para. 36). If fair value less costs to sell can't be reliably estimated, use value in use alone (para. 37).

Which one usually dominates?

Asset held for DISPOSAL → value in use ≈ net disposal proceeds → fair value less costs to sell is usually the recoverable service amount Asset held ON AN ONGOING BASIS for specialized public services → value in use is LIKELY GREATER than fair value less costs to sell (para. 38)

Indefinite-life intangible: the MOST RECENT detailed recoverable-service-amount calculation may be reused in the current period if the underlying asset composition hasn't changed significantly, the prior calculation exceeded carrying amount by a substantial margin, and it's remote that a current calculation would fall below carrying amount (para. 39A).

Fair Value Less Costs to Sell (paras. 40–43)

A hierarchy of evidence

BEST EVIDENCE: price in a binding sale agreement, arm's length, adjusted for directly attributable disposal costs
No binding agreement, but an ACTIVE MARKET exists → current bid price (or the most recent transaction price, absent significant intervening economic change)
Neither exists → BEST INFORMATION AVAILABLE reflecting what the entity could obtain, arm's length, at the reporting date – considering recent transactions for similar assets in the same industry

Fair value less costs to sell does NOT reflect a forced sale, unless management/the governing body is actually compelled to sell immediately. Costs of disposal exclude termination benefits and reorganization costs – those aren't direct incremental disposal costs (para. 43).

Value in Use – Three Measurement Approaches (paras. 44–50)

1. Depreciated Replacement Cost

Lower of reproduction cost and replacement cost, less accumulated depreciation for already-consumed service potential

Costs are determined on an OPTIMIZED basis – an entity wouldn't replace an over-designed or over-capacity asset like-for-like. Genuine standby/surplus capacity held for safety reasons (e.g. fire engines on standby) IS part of required service potential (para. 47).

2. Restoration Cost

Current cost of replacing pre-impairment service potential − Estimated cost to restore the asset

Best fit for PHYSICAL DAMAGE impairments – the "before" cost is usually the depreciated reproduction/replacement cost.

3. Service Units

Current cost of pre-impairment remaining service potential, REDUCED to reflect the lower number of service units now expected

Best fit for reduced OUTPUT/CAPACITY impairments (e.g. fewer usable floors, lower machine throughput).

Which approach fits which impairment cause? (para. 50)

Impairment causeGenerally measurable using

Technological/legal/government-policy environment changeDepreciated replacement cost, or service units

Change in extent/manner of use (incl. demand cessation)Depreciated replacement cost, or service units

Physical damageRestoration cost, or depreciated replacement cost

Recognizing & Measuring an Impairment Loss (paras. 51–57)

The core recognition rule

If recoverable service amount < carrying amount → reduce carrying amount to recoverable service amount = IMPAIRMENT LOSS

Non-revalued asset → impairment loss to SURPLUS OR DEFICIT immediately Revalued asset (IPSAS 31/45 current value model) → treated as a REVALUATION DECREASE – hits revaluation surplus first (to the extent it exists for that asset/class), excess to surplus or deficit (paras. 54, 54A)

Beyond zero, and depreciation going forward

If the estimated impairment EXCEEDS the carrying amount → reduce to ZERO; a LIABILITY is recognized only if ANOTHER IPSAS requires it (e.g. dismantling costs under IPSAS 19) (paras. 55–56) AFTER an impairment loss, depreciation/amortization is adjusted going forward to allocate the REVISED carrying amount (less residual value) over the remaining useful life (para. 57)

Reversing an Impairment Loss (paras. 58–70)

Mirror-image indications (para. 60)

Resurgence of demand/need for the asset's services Favorable long-term technological/legal/policy environment changes Favorable long-term changes in extent/manner of use, incl. improvement/enhancement spend A decision to RESUME previously halted construction Internal reporting evidence of significantly BETTER service performance than expected

A commitment to discontinue/restructure an operation can itself be a reversal indicator – e.g. an underutilized clinic X-ray machine expected to transfer to the main radiology department for much better utilization (para. 63).

The reversal mechanics – capped, and where it lands

Reversal ONLY IF there's been a change in the ESTIMATES used to determine recoverable service amount – never simply "time passing"

Increased carrying amount CANNOT exceed what it would have been (net of depreciation) had NO impairment ever been recognized (para. 68) Non-revalued asset → reversal to surplus or deficit immediately (para. 69) Revalued asset → treated as a REVALUATION INCREASE; but to the extent a PRIOR impairment loss on that same asset hit surplus/deficit, the reversal ALSO goes through surplus/deficit first (para. 69A)

Depreciation is again adjusted prospectively after a reversal, over the remaining useful life (para. 70).

Redesignation of Assets (paras. 71–72)

Redesignation alone does NOT trigger a test

An asset may be redesignated between cash-generating and non-cash-generating ONLY with clear evidence it's appropriate. Redesignation, BY ITSELF, does not automatically trigger an impairment test or reversal – the trigger instead comes from the ORDINARY indications in §3/§8, assessed for the asset AFTER redesignation.

Effluent treatment plant example

Built primarily to treat industrial effluent from a (now-demolished) social housing unit at no charge. The site will be redeveloped for industrial/retail use, and the plant will treat effluent at commercial rates going forward.

The entity redesignates the plant as a CASH-GENERATING asset – future impairment testing moves to IPSAS 26.

Disclosure Requirements (paras. 72A–79)

Per class of assets (paras. 72A–73)

The criteria used to distinguish non-cash-generating from cash-generating assets Impairment losses recognized in surplus/deficit during the period, and the SOFPerformance line item(s) Reversals of impairment losses recognized in surplus/deficit, and the line item(s) Impairment losses recognized DIRECTLY in revaluation surplus during the period Reversals of impairment losses recognized directly in revaluation surplus during the period

A "class of assets" is a grouping of similar nature and use (para. 74) – this information may be combined with a PP&E reconciliation required elsewhere (IPSAS 45) (para. 75). Segment reporters (IPSAS 18) also disclose impairment losses/reversals BY SEGMENT (para. 76).

Per MATERIAL impairment loss or reversal (para. 77)

Events and circumstances leading to the recognition or reversal The amount recognized/reversed, and the nature of the asset The relevant segment, if segment reporting applies Whether recoverable service amount is fair value less costs to sell, or value in use The basis used (e.g. active-market reference) if fair value less costs to sell; the APPROACH used (§6) if value in use

For AGGREGATE impairments/reversals not separately disclosed under para. 77: the main asset classes affected, and the main events/circumstances (para. 78). Key assumptions used to determine recoverable service amount are ENCOURAGED, not required, to be disclosed (para. 79).

Worked Examples (Illustrative Examples IE9–IE16)

Restoration cost – school bus damaged in an accident

1998: bus acquired for CU200,000, 10-year useful life. 2003: road accident requires CU40,000 restoration; new bus would cost CU250,000

Carrying amount 2003 = CU200,000 − CU100,000 accum. depreciation (5/10 yrs) = CU100,000.
Depreciated replacement cost (undamaged) = CU250,000 − CU125,000 (5/10 yrs) = CU125,000.
Recoverable service amount = CU125,000 − CU40,000 restoration cost = CU85,000.
Impairment loss = CU100,000 − CU85,000 = CU15,000.

Restoration cost – office building damaged by fire

1984: building built for CU50m, 40-year life. 2003 (19 yrs later): fire damage requires CU35.5m structural repairs; a new building would cost CU100m

Carrying amount 2003 = CU50m − CU23.75m accum. depreciation (19/40) = CU26.25m.
Depreciated replacement cost (undamaged) = CU100m − CU47.5m (19/40) = CU52.5m.
Recoverable service amount = CU52.5m − CU35.5m restoration = CU17m.
Impairment loss = CU26.25m − CU17m = CU9.25m.

Service units – high-rise building partially unoccupied

1988: 20-story building built for CU80m, 40-year life. 2003 (15 yrs later): new safety regulations force the top 4 floors permanently vacant. Fair value less costs to sell = CU45m; replacement cost of a similar building = CU85m

Carrying amount 2003 = CU80m − CU30m (15/40) = CU50m.
Depreciated replacement cost before adjustment = CU85m − CU31.875m (15/40) = CU53.125m.
Value in use = CU53.125m × 16/20 floors = CU42.5m. Recoverable service amount = HIGHER of CU42.5m and CU45m FVLCS = CU45m.
Impairment loss = CU50m − CU45m = CU5m.

Service units – underperforming printing machine

1998: machine bought for CU40m, expected 40m copies over 10 years. 2003 (5 yrs later): a fault causes a 25% output reduction over the remaining 5 years; a replacement machine now costs CU45m

Carrying amount 2003 = CU40m − CU20m (5/10) = CU20m.
Depreciated replacement cost before adjustment = CU45m − CU22.5m (5/10) = CU22.5m.
Recoverable service amount = CU22.5m × 75% = CU16.875m.
Impairment loss = CU20m − CU16.875m = CU3.125m.

Effective Date & Amendment Timeline (paras. 80A–82)

Amendment history at a glance

Base Standard: periods beginning on/after 1 January 2006.

EffectiveChange

1 Apr 2011Paras. 2, 7 amended; new 26A, 26B, 39A – IPSAS 31 (indefinite-life intangibles)

1 Jan 2013Para. 27 – Improvements to IPSAS 2011

1 Jan 2017Paras. 80, 81, 83 (IPSAS 33); para. 13 (IPSAS 35 & IPSAS 37, applied together)

1 Jan 2018Paras. 3, 4, 15 deleted; paras. 6, 20, 21 amended – The Applicability of IPSAS

1 Jan 2018Paras. 2, 54, 69, 73 amended; 7, 11 deleted; new 54A, 69A, 81A – Impairment of Revalued Assets (Amendments to IPSAS 21 & 26), Jul 2016

1 Jan 2018Para. 43 – IPSAS 39, Employee Benefits

1 Jan 2019Para. 14 amended, new para. 20A – IPSAS 40, Public Sector Combinations (goodwill treatment)

The 2016 "Impairment of Revalued Assets" amendment package is the most significant substantive change since issuance – it introduced the routing of impairment losses/reversals THROUGH revaluation surplus for revalued assets (§7, §8), applied prospectively from the date of application.

Relationship to IAS/IFRS – Comparison with IAS 36 (2004)

Comparison – IPSAS 21 vs IAS 36

IPSAS 21 is drawn primarily from IAS 36 (2004), Impairment of Assets – but covers a fundamentally different population: NON-cash-generating public sector assets, vs. IAS 36's cash-generating assets of profit-oriented entities.

TopicDifference

Value in use measurementIPSAS 21: present value of REMAINING SERVICE POTENTIAL, via 3 named approaches. IAS 36: present value of FUTURE CASH FLOWS

Market value decline indicatorIAS 36 includes it in the black-letter minimum indications; IPSAS 21 mentions it only in commentary

Halted constructionIPSAS 21 adds a black-letter indication (both for impairment AND reversal) – no IAS 36 equivalent

Scope exclusionsIAS 36 excludes several IFRS-specific asset classes (biological assets, deferred tax assets, insurance-contract intangibles) that IPSAS 21 does NOT exclude, since there's no equivalent IPSAS carve-out

Statement / Process Mapping

End-to-end impairment decision map

Is the asset CASH-GENERATING (primary objective: commercial return)? → IPSAS 26 instead. Otherwise → this Standard applies, by default (§2)
At each reporting date, is there any INDICATION of impairment (§3)? Indefinite-life intangible → test annually regardless. If no indication and not indefinite-life → stop, no formal estimate required
Estimate recoverable service amount = HIGHER of fair value less costs to sell (§5) and value in use (§6, three approaches)
Is recoverable service amount < carrying amount? → recognize an IMPAIRMENT LOSS, to surplus/deficit (or revaluation surplus first, if revalued) (§7)
At each later reporting date, is there an indication the loss may have DECREASED or reversed (§8)? → re-estimate and reverse if estimates have genuinely changed, capped at the never-impaired carrying amount

Concept-to-statement mapping table

IPSAS 21 conceptStatement(s)Notes

Impairment loss, non-revalued assetSOFPerfRecognized immediately in surplus/deficit

Impairment loss, revalued assetNA/E SOFPerfRevaluation surplus first, excess to surplus/deficit

Reversal of impairmentSOFPerf NA/EMirrors the original loss's routing

Reduced carrying amountSOFPDepreciation basis adjusted prospectively

Impairment losses/reversals by class & segmentNotesMandatory disclosures, paras. 72A–78

Related Standards – Cross-Reference Map

How IPSAS 21 connects across the IPSAS body of literature

StandardNature of the connection

IPSAS 12Inventories are excluded from IPSAS 21's scope entirely (§1)

IPSAS 16Investment property at fair value under the current value model needs no separate impairment test (§1)

IPSAS 18Segment-level impairment loss/reversal disclosure (§10)

IPSAS 19A liability beyond zero carrying amount is recognized only if IPSAS 19 requires it (e.g. dismantling obligations) (§7)

IPSAS 26The sister standard for CASH-generating assets – the two together cover all non-financial asset impairment (§1, §2)

IPSAS 31 / 45Revaluation models under which impairment losses/reversals route through revaluation surplus (§7, §8)

IPSAS 35 / 36 / 37Investments in controlled entities, associates, and joint arrangements classified as non-cash-generating fall under this Standard (§1)

IPSAS 40Goodwill is always treated as cash-generating – assessed under IPSAS 26, not here (§1)

IPSAS 41Financial assets within its scope are excluded from IPSAS 21 (§1)

IPSAS 44Held-for-sale assets/disposal groups are excluded from IPSAS 21's scope (§1)

IPSAS 47Binding arrangement assets and contract-cost assets excluded from scope (§1)

Quick-Reference Glossary

Cash-generating assets

Assets held with the primary objective of generating a commercial return.

Non-cash-generating assets

Assets other than cash-generating assets – the default classification for most public sector assets.

Fair value less costs to sell

The amount obtainable from an arm's length sale between knowledgeable, willing parties, less costs of disposal.

Costs of disposal

Incremental costs directly attributable to disposing of an asset, excluding finance costs and income tax expense.

Active market

A market with homogeneous traded items, willing buyers/sellers normally available, and publicly available prices.

Useful life

The period an asset is expected to be used, or the number of production/similar units expected to be obtained from it.

Financial statement key

SOFP Statement of financial position SOFPerf Statement of financial performance NA/E Net assets/equity (statement of changes)