IPSAS 26
Active
Impairment of Cash-Generating Assets
Specifies how an entity assesses and measures impairment of cash-generating assets – including identifiable cash-generating units and goodwill. Uses the higher of an asset's fair value less costs to sell and its value in use; covers identifying assets susceptible to impairment, measuring recoverable amount, allocating impairment losses within a CGU, reversing impairment, and related disclosures. Effective 1 April 2009. (IAS 36 equivalent, adapted for the public sector.)
Active Standard
IPSAS 26 Impairment of Cash-Generating Assets is the current, active standard issued by the IPSASB for assessing and measuring impairment of cash-generating assets – including identifiable cash-generating units and goodwill. It is effective for annual financial statements covering periods beginning on or after 1 April 2009 (earlier application is permitted). The current Standard comprises paras. 1–127.
IPSAS 26 is the IPSASB's adaptation of IAS 36 Impairment of Assets for the public sector. The core structure – identifying assets that may be impaired, measuring recoverable amount as the higher of fair value less costs to sell and value in use, allocating impairment losses first to assets other than goodwill and then to goodwill, and reversing impairment when the recoverable amount has increased – is retained, with public-sector framing of the 'service constraint' concept in place of IAS 36's residual-value approach.
1
Objective, Scope & Definitions (paras. 1–13)
Objective & scope
Establishes the principles for carrying cash-generating assets (and CGUs) at no more than their recoverable amount – the higher of fair value less costs to sell and value in use. Applies to all assets (except those held for sale) that may be impaired at the reporting date.
Key definitions
Cash-generating asset
An asset (or group of assets) that generates an indivisible group of cash flows that are largely independent of the cash flows from other assets.
Recoverable amount
The higher of an asset's fair value less costs to sell and its value in use.
Scope exclusions
ExcludedInstead, see…
Assets held for sale / disposal groupsIPSAS 20 / IFRS 5
Investment property (cost model)IPSAS 16
Intangible assets with indefinite livesIPSAS 38
Bearer plants (agriculture)IPSAS 27
Three-step process: (1) identify assets that may be impaired; (2) determine recoverable amount for those assets; (3) recognise and measure the impairment loss (reversal too).
2
Cash-Generating vs Non-Cash-Generating Assets (paras. 14–22)
Core distinction (para. 14)
Cash-generating assets cover those whose economic benefits are not recovered solely through sale – typically PP&E, intangible assets, and long-lived investments used in operations. Non-cash-generating assets (including inventories) follow their own Standards.
A CGU is the smallest group of assets that generates cash flows largely independently of other assets. Goodwill is allocated to CGUs, never tested in isolation.
3
Identifying an Asset That May Be Impaired (paras. 23–32)
When to test (para. 23)
Indicate that an asset may be impaired whenever an event has occurred that indicates the asset's carrying amount may not be recoverable. Impairment is assessed at each reporting date – a 'point in time' evaluation, not a rolling forecast.
Internal indicatorsObsolescence, physical damage, idle capacityRestructuring, legal/economic changesMarket-driven indicatorsMarket value below cost, declining cash flows
4
Measuring Recoverable Amount (paras. 33–46)
Higher of two measurements (para. 33)
Recoverable amount = max(fair value less costs to sell, value in use). If carrying amount exceeds recoverable amount, the asset is impaired and written down.
Fair value less costs to sell – market-basedValue in use – entity-specific, discounted cash-flow estimateUse the HIGHER of the two
Where both estimates are about equally reliable, value in use may be the more relevant measure for a CGU with no active market; fair value dominates where markets are liquid.
5
Value in Use – Cash Flow Projections (paras. 47–56)
Estimating future cash flows (para. 47)
Value in use = discounted cash-flow estimate. Uses the entity's own cash-flow projections (as of the reporting date), a pre-tax discount rate reflecting current market assessments of time value and risk, and the expected cash flows over the asset's (or CGU's) remaining useful life.
Value in use
The present value of future cash-flows expected to be derived from an asset (or CGU).
6
Recognising an Impairment Loss (paras. 57–68)
When the loss hits (para. 57)
Recognised immediately in profit or loss (or equity where permitted) when the asset's carrying amount exceeds its recoverable amount. Revalued assets are compared at the revalued amount.
Written-down to recoverable amountCarrying amount of CGU after the write-downIf CGU has goodwill, allocate first to other assets
7
Cash-Generating Units – Identification & Carrying Amount (paras. 69–78)
CGU at a glance (para. 69)
AspectGuidance
Smallest cash-generating groupLargely independent cash inflows
Goodwill allocationTo the CGU that benefits (never tested alone)
Carrying amountSum of assets less liabilities assigned
If a CGU's carrying amount is below zero (liabilities exceed assets), recognise a liability unless it results from a payment obligation.
8
Goodwill Allocation & Impairment Testing (paras. 79–92)
Goodwill is last in (para. 81)
For impairment, losses are allocated: first to assets other than goodwill; only when assets other than goodwill are reduced to zero is goodwill tested for impairment.
Goodwill
The excess of the cost of an acquired unit over the fair value of acquired net identifiable assets.
9
Allocating an Impairment Loss Within a CGU (paras. 93–106)
Order of allocation (para. 94)
Within a CGU, an impairment loss is allocated to reduce the carrying amount of assets in a prescribed order: (1) assets other than goodwill, proportionally; (2) goodwill. No asset is written below its fair value less costs to sell.
Reduce pro-rata (excluding goodwill)Reduce goodwill only thereafterCarrying amount ≥ fair value less costs to sell
10
Reversing an Impairment Loss (paras. 107–116)
Reversal allowed (para. 107)
An impairment loss for an asset (and a CGU) may be reversed if, and only if, there has been a change in the estimates used to calculate the asset's recoverable amount since the loss was recognised. The reversal is limited to the original carrying amount minus discount.
Goodwill reversals are PROHIBITED. Reversals are recorded in profit or loss (not equity where previously charged to equity).
11
Disclosures (paras. 117–123)
What to tell users (para. 117)
The amountThe explanation
Impairment loss recognisedEvents indicating the asset's carrying amount may not be recoverable
ReversalsMethods used to determine recoverable amount
Discount rateCGU structure and how goodwill was allocated
12
Effective Date & Amendment Timeline
Timeline
DateEvent
Mar 2008Issued
1 Apr 2009Effective date
2019Amended (latest)
Issued alongside IPSAS 17/18/19 to complete the impairment set; supersedes earlier ad hoc guidance.
13
Relationship to IAS 36
Mapping notes (para. 127)
IPSAS 26 mirrors IAS 36's structure (recoverable amount, CGUs, goodwill allocation, reversals) but replaces the 'residual value' constraint with the public-sector service-constraint framing and adapts the discount-rate commentary for public-sector cash-flow profiles.
IAS 36 recoverable amountIPSAS 26 recoverable amount (identical)IAS 36 CGUIPSAS 26 CGUIAS 36 goodwill reversal banIPSAS 26 same
14
Statement / Process Mapping
Where it flows
ProcessLedger
Impairment calculationAsset Register → Revaluation Reserves
CGU allocationBusiness-planning → Asset Allocation
Disclosure prepDisclosure Engine → IPSAS 7200
15
Related Standards
See also
StandardRelation
IPSAS 17Property, Plant & Equipment (cost model – impairment)
IPSAS 38Intangible Assets
IAS 36Direct equivalent
16
Glossary
Carrying amount
Asset's cost less accumulated depreciation/impairment (liabilities: amortised cost).
Recoverable amount
Higher of fair value less costs to sell and value in use.
Value in use
Discounted future cash flows expected from an asset (or CGU).
CGU
Cash-Generating Unit – smallest group that generates largely independent cash flows.
Goodwill
Excess of CGU cost over fair value of net identifiable assets.
Reversal
Removal of a previously recognised impairment (never for goodwill).