Impairment loss

Screen management

This function consists of a tab that is used to enter the impairment loss/increase process setups.

Management of the window

The management mode is the same for this window as for all the actions that can be applied to assets.

It is therefore advisable:

• Either to directly confirm the entry of the parameters by clicking OK. The impairment loss calculation is carried out directly on the selected asset.
• Or to pass by an intermediate stage - control on the parameters entered and the values calculated - by clicking Check.

A window is displayed with the following information:

- Company in which the asset is referenced
- Asset reference and description
- Ex-tax receipt value (CoA or IFRS)
- Net value before impairment loss/reversal
- Impairment
- Impairment loss reversal
- Net value before impairment loss/reversal
- Reversal limit
- Market value
- Effective start date.

Click Cancel to close the control window;  the parameter entry window is displayed again in order to:
- either validate the update by clicking OK, and then return to modification mode on the Assets screen. The processing is taken into account only after saving the asset.
- or cancel the update by clicking Cancel.
 

Header

Tab Setup definition

Impairment loss/reversal

To carry out an impairment loss/reversal, the user needs to enter the following parameters:

- Internal reason and/or external reason justifying the impairment loss or impairment loss reversal.

- Market value and/or Usage value. These values will be used to determine the Recoverablevalue that corresponds to the largest of the two. The entry of at least one of the two values is therefore mandatory.
Note: the Market value field displays by default any value assigned in the Market value option window accessible from the Assets management function. This value can be modified.

Other information is presented in the screen, it cannot be modified:

- Effective date: this field is automatically loaded with the end date of the current fiscal year or with the end date of the current period when the fiscal year is sub-divided into periods.

- Net book value.
This field is not assigned when an impairment loss or reversal has already taken place for the period or fiscal year.

-Impairment loss. This field is loaded automatically after determining the recoverable amount, based on the impairment loss amount of the period (or fiscal year). This amount corresponds to the result of the following calculation:
Net Value of the asset at period end - Recoverable amount only if the net value of the asset is greater than its recoverable amount.
In the opposite case the impairment loss amount is equal to: 0.
This field is not entered during the cancellation of an impairment loss.

- Impairment loss reversal. This field is automatically loaded after the recoverable value has been determined. It contains, if it exists, the impairment loss reversal amount for the period. It can only be entered if an impairment loss has already been carried out in one of the previous periods. This amount corresponds to the result of the following calculation:
Recoverable amount - Net Value of the asset at period end only if the recoverable amount of the asset is greater than its net value.
In the opposite case the Impairment loss reversal amount is equal to: 0.
This field is not entered during the cancellation of an impairment loss.

- Impairment loss reversal balance. This field is only entered in the case when the calculated impairment loss reversal amount cannot be assigned to the asset completely, because of its impairment loss reversal threshold.
This impairment loss reversal balance can be used as a revaluation for companies that have chosen this method: the revaluation is carried out either by individual processing or by the mass revaluation . processing.
This field is not entered during the cancellation of an impairment loss.

- Impairment loss limit. This field is only entered when an impairment loss has already been carried out in one of the previous periods.
This amount, automatically calculated, constitutes the limit applied in order not to obtain a Net valuegreater than that which would have been determined if the asset had not been impaired.
This amount corresponds to the result of the following calculation:
Theoretical net value at period start (the theoretical value does not take the impairment losses or increases into account) - Actual net value at period start (after impairment loss on previous periods).
This field is not entered during the cancellation of an impairment loss.

Description of the impairment loss processing

An impairment loss processing carries out the following operations:

• Entering, in the selected depreciation plan, the impairment loss amount (and the reversal limit) or the impairment loss reversal amount.
   
• Calculation of its new net value on period end.
  Note: if this new net value is less than the residual value of the asset, a message prompts the user to confirm the impairment loss process. If it is accepted, the residual value will be replaced by the new net value at closing. If it is not accepted, the impairment loss process is aborted.
   
• Update of the asset and loading of the internal/external impairment loss reason and, if necessary, of the new Market value.
  When it is modified the Market value is passed, at the level of theMarket value options window, to each of the plans already carrying a market value and where the period end date (or fiscal year end date, if the fiscal year is not divided into periods) is identical to that in the plan involved by the process.
   
• Update of its Residual value (with the Net value of the asset, if this net value is less than the residual value before impairment loss).
   
• The impairment loss of an asset in non residual mode leads to a change in depreciation method that will automatically take the Equivalent residual method value. This change in method is used to process in a long-term fashion the impairment loss or impairment loss reversal, by depreciating the new net value over the residual depreciation duration.
   
• Generation of an Impairment loss event (FASIML) in case of impairment loss, or impairment loss reversal due to the disappearance or reduction of the value loss index for the asset:
  - The operating effective date recorded in the EVTDAT field and the accounting effective date recorded in the CPTDATINT field receive the End date of the current period.
  This event contains the information required for the production of accounting entries related to impairment losses and impairment loss reversals.
  
  Notes:
  - In case of an impairment loss reversal occurring during the issue of an asset with an impairment loss balance on issue date, the FASIML event is generated on asset disposal. 
  - When the impairment loss reversal is linked to an impairment loss on a plan managed in compliance with the CRC2002-10 standard, and transferred to exceptional depreciation (see below), no reversal event is generated. The values required for the posting of the impairment loss in the impairment loss account, are recorded in the DEPREC charge table.
   
• Generation of the accounting entry used to post the event, if the Entry type pertaining to this event is set up for an immediate posting of the event.

Impairment loss on a plan managed in compliance with the CRC2002-10 standard (generally speaking on the chart of accounts of a French company):

A impairment loss occurring on a plan managed in compliance with the CRC2002-10 standard is automatically accompanied by an impairment loss reversal calculated on the basis of the depreciation expense of the current FY. The amount of the impairment loss reversal corresponds to the difference between the amount of the theoretical FY expense (calculated without taking the impairment loss into account) and the amount of the actual FY expense.
This impairment loss reversal is automatically transferred to exceptional depreciation in each period of the FY or in the issue period if an asset issue is recorded in a period prior to the FY end.
The reversal and its transfer to exceptional charge are neutral regarding the net value:
- the impairment loss reversal increases the net value
- the exceptional depreciation charge reduces this net value by the same amount.
 
Note: An impairment loss on the Chart of accounts does not generate any Book vs. Tax depreciation. This depreciation is actually determined taking into account the theoretical accounting depreciation of the FY (and not the actual depreciation), i.e. taking into account all the depreciation charges: the "standard" charge to which the exceptional charge, caused by an impairment loss reversal or not (see examples 2 and 3 below), is added.

Examples

* Example 1:Impairment loss and increase limit
Asset depreciated over 5 years, where the initial balance sheet value is 1,000. 

- Fiscal year end 3: impairment loss of 300
- Fiscal year 4: Theoretical NV without taking into account the impairment loss = 200
- Fiscal year 4: Theoretical NV taking into account the impairment loss = 50

The Impairment loss reversal limit for FY 4 equals : 400 – 100 = 300
In fact, if the Impairment loss reversal for the fiscal year 4 is greater than 150, it leads to an actual NV that is greater than that which it would have been if no impairment loss had taken place at the end of fiscal year 3.
 

* Example 2: Accounting and Fiscal depreciation plan, due to an impairment loss.

- Depreciation start date: 01/01/2002
- Asset value: 1,000
- Accounting method: linear over 10 years
- Fiscal method: linear over 10 years
- Current fiscal year: [01/01/2006 - 31/12/2006]
- On 12/31/2006, there is an impairment loss of 200

Depreciation plan Accounting :

Depreciation plan Fiscal:

* Example 3: Accounting and Fiscal depreciation plan, due to an impairment loss.

- Depreciation start date: 01/01/2002
- Asset value: 2,000
- Accounting method: linear over 10 years
- Fiscal method: linear over 8 years
- Current fiscal year: [01/01/2006 - 31/12/2006]
- On 12/31/2006, there is an impairment loss of 600

Depreciation plan Accounting :

Depreciation plan Fiscal:

Cancellation of impairment loss/reversal

An asset cannot be subject, during the current period, to more than one impairment loss/reversal in the same plan ; it is therefore necessary to cancel the impairment loss/reversal previously carried out before carrying out a new impairment loss/reversal.
If an impairment loss or reversal has already been carried out in the period, a message warns the user to proceed with the cancellation.
In this case, only the Cancel impairment loss flag can be accessed and activated.
This cancellation is possible as long as the fiscal year or period has not been closed.
It involves the re-initialization of the impairment loss or impairment loss reversal amount for the plan, and the creation of the cancellation events corresponding to the original events.

Description of the impairment loss/reversal cancellation processing

The cancellation process for the impairment loss/reversal leads to:

• Reinitialize to the zero the impairment loss or impairment loss reversal amount in the plan.
   
• the reassignment to their values prior to the impairment loss/reversal of the fields updated by the impairment loss processing (with the exception of the Market value, which keeps the value entered at the time of the impairment loss).
   
• the automatic switching back to the original method if the impairment loss has led to the mandatory change of the depreciation method to an equivalent residual method..
   
• the generation of an Impairment loss cancellation event (FASIML). The impairment loss or impairment loss cancellation events have the same contents, the event type only is used to distinguish them.
   
  The user can view the events in the Events journal window that can be accessed from the Other info tab of the Fixed assets management function.
  

Specific Buttons

Error messages

In addition to the generic error messages, the following messages can appear during the entry :

"Impairment loss reversal impossible, the selected assets are not impaired."

An impairment loss reversal is established when the recoverable value is greater than the net value, but this reversal cannot be recorded if no impairment loss of the plan has taken place in the previous periods.
A revaluation should be conducted to take this value increase into account.

"A company calculation must be carried out in order to impair"

 A depreciation or depreciation reversal is recorded after having calculated the depreciations for the period or fiscal year. As a result, the impairment loss processing is only authorized after a periodic calculation (or fiscal year) for the company.

"Impossible to impair this asset because it has already been subject to a revaluation in the current period."

 During the same period, it is not possible to perform both a revaluation and a depreciation on the same plan. If the asset has been revaluated, it is necessary to have previously canceled this revaluation in order to proceed with the impairment loss.

Tables used

Refer to documentation Implementation