IPSAS 26―IMPAIRMENT OF CASH-GENERATING ASSETS
IPSAS 26―IMPAIRMENT OF CASH-GENERATING ASSETSAcknowledgmentThis International Public Sector Accounting Standard (IPSAS) is drawn primarilyfrom International Accounting Standard (IAS) 36, Impairment of Assets, publishedby the International Accounting Standards Board (IASB). Extracts from IAS 36 arereproduced in this publication of the International Public Sector AccountingStandards Board (IPSASB) of the International Federation of Accountants (IFAC)with the permission of the International Financial Reporting Standards (IFRS)Foundation.The approved text of the International Financial Reporting Standards (IFRSs) isthat published by the IASB in the English language, and copies may be obtaineddirectly from IFRS Publications Department, First Floor, 30 Cannon Street,London EC4M 6XH, United Kingdom.E-mail: publications@ifrs.orgInternet: www.ifrs.orgIFRSs, IASs, Exposure Drafts, and other publications of the IASB are copyright ofthe IFRS Foundation.“IFRS,” “IAS,” “IASB,” “IFRS Foundation,” “International AccountingStandards,” and “International Financial Reporting Standards” are trademarks ofthe IFRS Foundation and should not be used without the approval of the IFRSFoundation.IPSAS 26906
History of IPSASThis version includes amendments resulting from IPSASs issued up to January 15,2013.IPSAS 26, Impairment of Cash-Generating Assets was issued in February 2008.Since then, IPSAS 26 has been amended by the following IPSASs: Improvements to IPSASs 2011 (issued October 2011) Improvements to IPSASs (issued January 2010) IPSAS 27, Agriculture (issued December 2009) IPSAS 29, Financial Instruments: Recognition and Measurement (issuedJanuary 2010) IPSAS 31, Intangible Assets (issued January 2010) Improvements to IPSASs (issued November 2010)Table of Amended Paragraphs in IPSAS 26Paragraph AffectedHow AffectedAffected ByIntroduction sectionDeletedImprovements to IPSASsOctober 20112AmendedIPSAS 27 December 2009IPSAS 29 January 2010IPSAS 31 January 20108AmendedIPSAS 27 December 2009IPSAS 29 January 20109AmendedIPSAS 29 January 201027AmendedImprovements to IPSASsNovember 2010123AmendedImprovements to IPSASsJanuary 2010126ANewImprovements to IPSASsJanuary 2010126BNewImprovements to IPSASsJanuary 2010907IPSAS 26PUBLIC SECTORIPSAS 26—IMPAIRMENT OF CASH-GENERATING ASSETS
Paragraph AffectedHow AffectedAffected By126CNewIPSAS 31 January 2010IPSAS 26908
IPSAS 26―IMPAIRMENT OF CASH-GENERATING ASSETSCONTENTSParagraphObjective .1Scope .2–12Definitions .13–20Cash-Generating Assets .14–18Depreciation .19Impairment .20Identifying an Asset that may be Impaired .21–30Measuring Recoverable Amount .31–70Measuring the Recoverable Amount of an Intangible Assetwith an Indefinite Useful Life .37Fair Value less Costs to Sell .38–42Value in Use .43–70Basis for Estimates of Future Cash Flows .46–51Composition of Estimates of Future Cash Flows .52–66Foreign Currency Future Cash Flows .67Discount Rate .68–70Recognizing and Measuring an Impairment Loss of an IndividualAsset .71–75Cash-Generating Units .76–97Identifying the Cash-Generating Unit to which an Asset Belongs .77–84Recoverable Amount and Carrying Amount of aCash-Generating Unit .85–90Impairment Loss for a Cash-Generating Unit .91–97Reversing an Impairment Loss .98–111Reversing an Impairment Loss for an Individual Asset .106–109Reversing an Impairment Loss for a Cash-Generating Unit .110–111909IPSAS 26PUBLIC SECTORFebruary 2008
IMPAIRMENT OF CASH-GENERATING ASSETSRedesignation of Assets .112–113Disclosure .114–125Disclosure of Estimates used to Measure Recoverable Amountsof Cash-Generating Units Containing Intangible Assetswith Indefinite Useful Lives .123–125Effective Date .126–127Appendix A: Application GuidanceAppendix B: Amendments to Other IPSASsBasis for ConclusionsIllustrative Decision TreeImplementation GuidanceComparison with IAS 36IPSAS 26910
International Public Sector Accounting Standard 26, Impairment of CashGenerating Assets, is set out in paragraphs 1–127. All the paragraphs have equalauthority. IPSAS 26 should be read in the context of its objective, the Basis forConclusions, and the Preface to International Public Sector Accounting Standards.IPSAS 3, Accounting Policies, Changes in Accounting Estimates and Errors,provides a basis for selecting and applying accounting policies in the absence ofexplicit guidance.911IPSAS 26PUBLIC SECTORIMPAIRMENT OF CASH-GENERATING ASSETS
IMPAIRMENT OF CASH-GENERATING ASSETSObjective1.The objective of this Standard is to prescribe the procedures that an entityapplies to determine whether a cash-generating asset is impaired, and toensure that impairment losses are recognized. This Standard also specifieswhen an entity should reverse an impairment loss, and prescribes disclosures.Scope2.An entity that prepares and presents financial statements under theaccrual basis of accounting shall apply this Standard in accounting forthe impairment of cash-generating assets, except for:(a)Inventories (see IPSAS 12, Inventories);(b)Assets arising from construction contracts (see IPSAS 11,Construction Contracts);(c)Financial assets that are within the scope of IPSAS 29, FinancialInstruments: Recognition and Measurement;(d)Investment property that is measured at fair value (see IPSAS 16,Investment Property);(e)Cash-generating property, plant, and equipment that is measuredat revalued amounts (see IPSAS 17, Property, Plant, andEquipment);(f)Deferred tax assets (see the relevant international or nationalaccounting standard dealing with deferred tax assets);(g)Assets arising from employee benefits (see IPSAS 25, EmployeeBenefits);(h)Cash-generating intangible assets that are measured at revaluedamounts (see IPSAS 31, Intangible Assets);(i)Goodwill;(j)Biological assets related to agricultural activity that are measuredat fair value less costs to sell (see IPSAS 27, Agriculture);(k)Deferred acquisition costs, and intangible assets, arising from aninsurer’s contractual rights under insurance contracts within thescope of the relevant international or national accounting standarddealing with insurance contracts;(l)Non-current assets (or disposal groups) classified as held for salethat are measured at the lower of carrying amount and fair value,less costs to sell, in accordance with the relevant international ornational accounting standard dealing with non-current assets heldfor sale and discontinued operations; andIPSAS 26912
(m)Other cash-generating assets in respect of which accountingrequirements for impairment are included in another Standard.3.This Standard applies to all public sector entities other than GovernmentBusiness Enterprises.4.The Preface to International Public Sector Accounting Standards issued bythe IPSASB explains that Government Business Enterprises (GBEs) applyIFRSs issued by the IASB. GBEs are defined in IPSAS 1, Presentation ofFinancial Statements.5.GBEs apply IAS 36, Impairment of Assets, and therefore are not subject to theprovisions of this Standard. Public sector entities, other than GBEs, that holdnon-cash-generating assets as defined in paragraph 13 apply IPSAS 21,Impairment of Non-Cash-Generating Assets, to such assets. Public sectorentities, other than GBEs, that hold cash-generating assets apply therequirements of this Standard.6.This Standard excludes cash-generating intangible assets that are regularlyrevalued to fair value from its scope. This Standard includes all other cashgenerating intangible assets (for example, those that are carried at cost lessany accumulated amortization) within its scope.7.This Standard excludes goodwill from its scope. Entities apply therequirements of the relevant international or national accounting standardsdealing with the impairment of goodwill, the allocation of goodwill to cashgenerating units, and the testing for impairment of cash-generating units withgoodwill.8.This Standard does not apply to inventories and cash-generating assets arisingfrom construction contracts, because existing standards applicable to theseassets contain requirements for recognizing and measuring such assets. ThisStandard does not apply to deferred tax assets, assets related to employeebenefits, or deferred acquisition costs and intangible assets arising from aninsurer’s contractual rights under insurance contracts. The impairment of suchassets is addressed in the relevant international or national accountingstandards. In addition, this Standard does not apply to (a) biological assetsrelated to agricultural activity that are measured at fair value less costs to sell,and (b) non-current assets (or disposal groups) classified as held for sale thatare measured at the lower of carrying amount and fair value less costs to sell.IPSAS 27 dealing with biological assets related to agricultural activity, andthe relevant international or national accounting standards dealing with noncurrent assets (or disposal groups) classified as held for sale, containmeasurement requirements.9.This Standard does not apply to any financial assets that are included in thescope of IPSAS 28, Financial Instruments: Presentation. Impairment of theseassets is dealt with in IPSAS 29.913IPSAS 26PUBLIC SECTORIMPAIRMENT OF CASH-GENERATING ASSETS
IMPAIRMENT OF CASH-GENERATING ASSETS10.This Standard does not require the application of an impairment test to aninvestment property that is carried at fair value in accordance with IPSAS 16.Under the fair value model in IPSAS 16, an investment property is carried atfair value at the reporting date, and any impairment will be taken into accountin the valuation.11.This Standard does not require the application of an impairment test to cashgenerating assets that are carried at revalued amounts under the revaluationmodel in IPSAS 17. Under the revaluation model in IPSAS 17, assets will berevalued with sufficient regularity to ensure that they are carried at an amountthat is not materially different from their fair value at the reporting date, andany impairment will be taken into account in that valuation.12.Investments in:(a)Controlled entities, as defined in IPSAS 6, Consolidated and SeparateFinancial Statements;(b)Associates, as defined in IPSAS 7, Investments in Associates; and(c)Joint ventures, as defined in IPSAS 8, Interests in Joint Ventures,are financial assets that are excluded from the scope of IPSAS 29. Where suchinvestments are in the nature of cash-generating assets, they are dealt withunder this Standard. Where these assets are in the nature of non-cashgenerating assets, they are dealt with under IPSAS 21.Definitions13.The following terms are used in this Standard with the meaningsspecified:A cash-generating unit is the smallest identifiable group of assets heldwith the primary objective of generating a commercial return thatgenerates cash inflows from continuing use that are largely independentof the cash inflows from other assets or groups of assets.Recoverable amount is the higher of an asset’s or a cash-generating unit’sfair value less costs to sell and its value in use.Value in use of a cash-generating asset is the present value of theestimated future cash flows expected to be derived from the continuinguse of an asset and from its disposal at the end of its useful life.Terms defined in other IPSASs are used in this Standard with the samemeaning as in those Standards, and are reproduced in the Glossary ofDefined Terms published separately.IPSAS 26914
Cash-Generating Assets14.Cash-generating assets are assets held with the primary objective ofgenerating a commercial return. An asset generates a commercial return whenit is deployed in a manner consistent with that adopted by a profit-orientedentity. Holding an asset to generate a “commercial return” indicates that anentity intends to (a) generate positive cash inflows from the asset (or from thecash-generating unit of which the asset is a part), and (b) earn a commercialreturn that reflects the risk involved in holding the asset. An asset may be heldwith the primary objective of generating a commercial return even though itdoes not meet that objective during a particular reporting period. Conversely,an asset may be a non-cash-generating asset even though it may be breakingeven or generating a commercial return during a particular reporting period.Unless stated otherwise, references to “an asset” or “assets” in the followingparagraphs of this Standard are references to “cash-generating asset(s).”15.There are a number of circumstances in which public sector entities may holdsome assets with the primary objective of generating a commercial return,although the majority of their assets are not held for that purpose. Forexample, a hospital may deploy a building for fee-paying patients. Cashgenerating assets of a public sector entity may operate independently of thenon-cash-generating assets of the entity. For example, the deeds office mayearn land registration fees independently from the department of land affairs.16.In certain instances, an asset may generate cash flows although it is primarilyheld for service delivery purposes. For example, a waste disposal plant isoperated to ensure the safe disposal of medical waste generated by statecontrolled hospitals, but the plant also treats a small amount of medical wastegenerated by other private hospitals on a commercial basis. The treatment ofmedical waste from the private hospitals is incidental to the activities of theplant, and the assets that generate cash flows cannot be distinguished from thenon-cash-generating assets.17.In other instances an asset may generate cash flows and also be used for noncash-generating purposes. For example, a public hospital has ten wards, nineof which are used for fee-paying patients on a commercial basis, and the otheris used for non-fee-paying patients. Patients from both wards jointly use otherhospital facilities (for example, operating facilities). The extent to which theasset is held with the objective of providing a commercial return needs to beconsidered to determine whether the entity should apply the provisions of thisStandard or IPSAS 21. If, as in this example, the non-cash-generatingcomponent is an insignificant component of the arrangement as a whole, theentity applies this Standard, rather than IPSAS 21.18.In some cases it may not be clear whether the primary objective of holding anasset is to generate a commercial return. In such cases it is necessary toevaluate the significance of the cash flows. It may be difficult to determine915IPSAS 26PUBLIC SECTORIMPAIRMENT OF CASH-GENERATING ASSETS
IMPAIRMENT OF CASH-GENERATING ASSETSwhether the extent to which the asset generates cash flows is so significantthat this Standard is applicable, rather than IPSAS 21. Judgment is needed todetermine which Standard to apply. An entity develops criteria so that it canexercise that judgment consistently in accordance with the definition of cashgenerating assets and non-cash-generating assets and with the relatedguidance in paragraphs 14–17. Paragraph 114 requires an entity to disclosethe criteria used in making this judgment. However, given the overallobjectives of most public sector entities other than GBEs, the presumption isthat assets are non-cash-generating in these circumstances and, therefore,IPSAS 21 will apply.Depreciation19.Depreciation and amortization are the systematic allocation of the depreciableamount of an asset over its useful life. In the case of an intangible asset, theterm “amortization” is generally used instead of “depreciation.” Both termshave the same meaning.Impairment20.This Standard defines an “impairment” as a loss in the future economicbenefits or service potential of an asset, over and above the systematicrecognition of the loss of the asset’s future economic benefits or servicepotential through depreciation. Impairment of a cash-generating asset,therefore, reflects a decline in the future economic benefits or service potentialembodied in an asset to the entity that controls it. For example, an entity mayhave a municipal parking garage that is currently being used at 25 percent ofcapacity. It is held for commercial purposes, and management has estimatedthat it generates a commercial rate of return when usage is at 75 percent ofcapacity and above. The decline in usage has not been accompanied by asignificant increase in parking charges. The asset is regarded as impairedbecause its carrying amount exceeds its recoverable amount.Identifying an Asset that may be Impaired21.An asset is impaired when its carrying amount exceeds its recoverableamount. Paragraphs 25–27 describe some indications that an impairment lossmay have occurred. If any of those indications is present, an entity is requiredto make a formal estimate of recoverable amount. Except for thecircumstances described in paragraph 23, this Standard does not require anentity to make a formal estimate of recoverable amount if no indication of animpairment loss is present.22.An entity shall assess at each reporting date whether there is anyindication that an asset may be impaired. If any such indication exists,the entity shall estimate the recoverable amount of the asset.IPSAS 26916
23.Irrespective of whether there is any indication of impairment, an entityshall also test an intangible asset with an indefinite useful life or anintangible asset not yet available for use for impairment annually bycomparing its carrying amount with its recoverable amount. Thisimpairment test may be performed at any time during the reportingperiod, provided it is performed at the same time every year. Differentintangible assets may be tested for impairment at different times.However, if such an intangible asset was initially recognized during thecurrent reporting period, that intangible asset shall be tested forimpairment before the end of the current reporting period.24.The ability of an intangible asset to generate sufficient future economicbenefits or service potential to recover its carrying amount is usually subjectto greater uncertainty before the asset is available for use than after it isavailable for use. Therefore, this Standard requires an entity to test forimpairment, at least annually, the carrying amount of an intangible asset thatis not yet available for use.25.In assessing whether there is any indication that an asset may beimpaired, an entity shall consider, as a minimum, the followingindications:External sour
IMPAIRMENT OF CASH-GENERATING ASSETS IPSAS 26 914 10. This Standard does not require the application of an impairment test to an investment property that is carried at fair value in accordance with IPSAS 16. Under the fair value model in IPSAS 16, an investment property is carried at
IPSAS 16 Investment Property IAS 40 IPSAS 17 Property, Plant and Equipment IAS 16 IPSAS 18 Segment Reporting IAS 14 IPSAS 19 Provisions, Contingent Liabilities and Contingent Assets IAS 37 IPSAS 20 Related Party Disclosures IAS 24 IPSAS 21 Impair
IPSAS–IFRS Alignment Dashboard IPSASB Meeting (March 2021) Page 2 of 18 Note: The IPSASB views the Cash Basis IPSAS as an important steppingstone on the journey to full accrual accounting rather than an end in itself. Table 1 – IPSAS/RPG and Equivalent IFRS/PS—Summary IPSAS/RPG IFRS/PS Status IPSAS/RPG IFRS/PS Status IPSAS/RPG IFRS/PS Status
IPSASB Meeting (June 2018) Agenda Item 13.3.2 Prepared by: João Fonseca (May 2018) Page 1 of 16 IPSAS–IFRS Alignment Dashboard Table 1 – IPSAS and Equivalent IFRS—Summary* IPSAS IFRS Status IPSAS IFRS Status IPSAS IFRS Status 1, Presentation of Financial Statements IAS 1 17, Property, Plant, and Equip
wat e r for texas 2012 at at lan. 205. chapter 8: impacts of plans. bacteria impairment bacteria impairment for oysters dissolved oxygen impairment toxicity impairment ph impairment biological integrity impairment dissolved solids impairment metals impairment organics impairment nitrate and nitrite impairment. figure 8.1.
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