ASLB 21 Impairment Non-Cash
Accounting Standard for Local Bodies (ASLB) 21
Impairment of Non-Cash-Generating Assets
Contents
Paragraphs
OBJECTIVE 1
SCOPE 2–13
DEFINITIONS 14–23
Cash-Generating Assets 16–21
Depreciation 22
Impairment 23
IDENTIFYING AN ASSET THAT MAY BE IMPAIRED 24–34
MEASURING RECOVERABLE SERVICE AMOUNT 35–50
“Fair Value Less Costs to Sell" 40–43
Value in Use 44–49
Depreciated Replacement Cost Approach 45–47
Restoration Cost Approach 48
Service Units Approach 49
Application of Approaches 50
RECOGNISING AND MEASURING AN IMPAIRMENT LOSS 51–57
REVERSING AN IMPAIRMENT LOSS 58–70
REDESIGNATION OF ASSETS 71–72
DISCLOSURE 72A–79
IMPLEMENTATION GUIDANCE
ILLUSTRATIVE EXAMPLES
APPENDIX 1 COMPARISON WITH IPSAS 21, „IMPAIRMENT OF NON-
CASH-GENERATING ASSETS‟
APPENDIX 2 COMPARISON WITH AS 28, „IMPAIRMENT OF ASSETS‟
Compendium of Accounting Standards for Local Bodies (ASLBs)
Accounting Standard for Local Bodies (ASLB) 21
Impairment of Non-Cash-Generating Assets
(This Accounting Standard includes paragraphs set in bold italic type and
plain type, which have equal authority. Paragraphs in bold italic type indicate
the main principles. This Accounting Standard should be read in the context
of its objective and the Preface to the Accounting Standards for Local
Bodies1.)
The Accounting Standard for Local Bodies (ASLB) 21, „Impairment of Non-
Cash-Generating Assets‟, issued by the Council of the Institute of Chartered
Accountants of India, will be recommendatory in nature in the initial years for
use by the local bodies. This Standard will be mandatory for Local Bodies in
a State from the date specified in this regard by the State Government
concerned2.
The following is the text of the Accounting Standard for Local Bodies:
Objective
1. The objective of this Standard is to prescribe the procedures that an
entity applies to determine whether a non-cash-generating asset is
impaired, and to ensure that impairment losses are recognised. This
Standard also specifies when an entity would reverse an impairment
loss, and prescribes disclosures.
Scope
2. An entity that prepares and presents financial statements under
the accrual basis of accounting should apply this Standard in
accounting for impairment of non-cash-generating assets, except:
(a) Inventories (see ASLB 12, „Inventories‟);
(b) Assets arising from construction contracts (see ASLB 11,
„Construction Contracts‟);
1 Attention is specifically drawn to paragraph 4.2 of the „Preface to the Accounting
Standards for Local Bodies‟, according to which Accounting Standards are intended to
apply only to items which are material.
2 In respect of compliance with the Accounting Standards for Local Bodies, reference
may be made to the paragraph 7.1 of the „Preface to the Accounting Standards for Local
Bodies‟.
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Impairment of Non-Cash-Generating Assets
(c) Financial assets3;
(d) Investment Property that is measured using the fair value
model (see ASLB 16, „Investment Property‟); and
(e) [Deleted]
(f) [Deleted]
(g) Other assets in respect of which accounting requirements
for impairment are included in another ASLB.
3. This Standard applies to all entities that are described as the
Local Bodies in the Preface to Accounting Standards for Local
Bodies4.
4. [Deleted]
5. Entities that hold cash-generating assets as defined in paragraph
14, should apply ASLB 26, „Impairment of Cash-Generating
Assets‟, to such assets. Entities that hold non-cash-generating
assets should apply the requirements of this Standard to non-
cash-generating assets.
6. This Standard excludes from its scope the impairment of assets that
are dealt with in another ASLB. Entities apply ASLB 26 to their cash-
generating assets, and apply this Standard to their non-cash-
generating assets. Paragraphs 6−13 explain the scope of the Standard
in greater detail.
7. [Deleted]
8. This Standard does not apply to inventories and assets arising from
construction contracts, because existing ASLBs applicable to these
assets contain requirements for recognising and measuring these
assets.
9. This Standard does not apply to financial assets.
3 A financial asset is any asset that is:
(a) cash;
(b) an equity instrument of another entity;
(c) a contractual right:
(i) to receive cash or another financial asset from another entity;
(ii) to exchange financial assets or financial liabilities with another entity
under conditions that are potentially favourable to the entity.
4 Refer paragraph 1.3 of the „Preface to the Accounting Standards for Local Bodies‟.
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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
ASLB 16. This is because, under the fair value model in ASLB 16, an
investment property is carried at fair value at the reporting date and
any impairment will be taken into account in the valuation.
11. [Deleted]
12. Consistent with the requirements of paragraph 5 above, items of
property, plant, and equipment that are classified as cash-generating
assets, including those that are carried at revalued amounts under the
allowed alternative treatment in ASLB 17, are dealt with under ASLB
26.
13. Investments in:
(a) Controlled entities, as defined in ASLB 35, „Consolidated
Financial Statements‟;
(b) Associates, as defined in ASLB 36, „Investments in Associates
and Joint Ventures‟; and
(c) Joint arrangements, as defined in ASLB 37, „Joint
Arrangements‟;5
are financial assets. Where such investments are classified as cash-
generating assets, they are dealt with under ASLB 26. Where these
assets are non-cash-generating assets, they are dealt with under this
Standard.
Definitions
14. The following terms are used in this Standard with the meanings
specified:
An active market is a market in which all the following conditions
exist:
(a) The items traded within the market are homogeneous;
(b) Willing buyers and sellers can normally be found at any
time; and
5 The guidance with regard to consolidation and joint arrangements may be obtained
from other corresponding pronouncements as per the hierarchy prescribed in paragraph
15 of the ASLB 3, „Accounting Policies, Changes in Accounting Estimates, and Errors‟ till
the time ASLBs 35 and 37 are not formulated.
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Impairment of Non-Cash-Generating Assets
(c) Prices are available to the public.
Cash-generating assets are assets held with the primary objective
of generating a commercial return. For the purposes of
impairment, goodwill is considered a cash-generating asset.
Costs of disposal are incremental costs directly attributable to
the disposal of an asset, excluding finance costs and income tax
expense6.
“Fair value less costs to sell” is the amount obtainable from the
sale of an asset in an arm‟s length transaction between
knowledgeable, willing parties, less the costs of disposal.
An impairment is a loss in the future economic benefits or service
potential of an asset, over and above the systematic recognition
of the loss of the asset‟s future economic benefits or service
potential through depreciation.
Impairment of Non-Cash-Generating Assets is a loss in the
service potential of a non-cash generating asset over and above
the loss recognised through depreciation.
An impairment loss of Non-Cash-Generating Asset is the amount
by which the carrying amount of a non-cash-generating asset
exceeds its recoverable service amount.
Non-cash-generating assets are assets other than cash-
generating assets.
Recoverable service amount is the higher of a non-cash-
generating asset‟s „fair value less costs to sell‟ and its value in
use.
Useful life is either:
(a) The period of time over which an asset is expected to be
used by the entity; or
(b) The number of production or similar units expected to be
obtained from the asset by the entity.
Value in use of a non-cash-generating asset is the present value
of the asset‟s remaining service potential.
6 Income tax expenses, wherever applicable, are excluded while determining cost of
disposal.
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Terms defined in other ASLBs are used in this Standard with the
same meaning as in those Standards.
15. [Deleted]
Cash-Generating Assets
16. Cash-generating assets are assets held with the primary objective of
generating a commercial return. An asset generates a commercial
return when it is deployed in a manner consistent with that adopted by
a profit-oriented entity. Holding an asset to generate a commercial
return indicates that an entity intends to generate positive cash inflows
from the asset (or from the cash-generating unit of which the asset is a
part), and earn a commercial return that reflects the risk involved in
holding the asset. An asset may be held with the primary objective of
generating a commercial return, even though it does not meet that
objective during a particular reporting period. Conversely, an asset
may be a non-cash-generating asset, even though it may be breaking
even or generating a commercial return during a particular reporting
period. Unless stated otherwise, references to an asset or assets in
the following paragraphs of this Standard are references to non -cash-
generating asset(s).
17. There are a number of circumstances in which entities may hold some
assets with the primary objective of generating a commercial return,
although the majority of assets are not held for that purpose. For
example, a municipal hospital/ dispensary may deploy a building for
fee-paying patients. Cash-generating assets of an entity may operate
independently of the non-cash-generating assets of the entity. For
example, the deeds office may earn land registration fees
independently from the department of land affairs.
18. In certain instances, an asset may generate cash flows although it is
primarily held for service delivery purposes. For example, a waste
disposal plant is operated to ensure the safe disposal of medical waste
generated by hospitals controlled by a Local Body, and, is accordingly
a non-cash-generating asset, but the plant also treats a small amount
of medical waste generated by other private hospitals on a commercial
basis. The treatment of medical waste from the private hospitals is
incidental to the activities of the plant, and the assets that generate
cash flows cannot be distinguished from the non-cash-generating
assets.
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Impairment of Non-Cash-Generating Assets
19. In other instances, an asset may generate cash flows and also be
used for non-cash-generating purposes. For example, a public hospital
has ten wards, nine of which are used for fee-paying patients on a
commercial basis, and the other is used for non-fee-paying patients.
Patients from both wards jointly use other hospital facilities (for
example, operating facilities). The extent to which the asset is held
with the objective of providing a commercial return needs to be
considered to determine whether the entity should apply the provisions
of this Standard or ASLB 26. If, as in this example, the non-cash-
generating component is an insignificant component of the
arrangement as a whole, the entity applies ASLB 26 rather than this
Standard.
20. In some cases, it may not be clear whether the primary objective of
holding an asset is to generate a commercial return. In such cases, it
is necessary to evaluate the significance of the cash flows. It may be
difficult to determine whether the extent to which the asset generates
cash flows is so significant that this Standard is applicable rather than
ASLB 26. Judgment is needed to determine which Standard to apply.
An entity develops criteria so that it can exercise that judgment
consistently in accordance with the definition of cash-generating
assets and non-cash-generating assets, and with the related guidance
in paragraphs 16–20. Paragraph 73A requires an entity to disclose the
criteria used in making this judgment. However, given the overall
objectives of most Local Bodies the presumption is that assets are
non-cash-generating and, therefore, ASLB 21 will apply. For example,
a municipal school has started tuition classes for students during
summer vacation on commercial basis. However, the primary objective
of municipal school is to provide education service on non-commercial
basis. The commercial activities (tuition classes) carried out by
municipal school during summer vacation is insignificant. In this case,
the municipal school is a non-cash generating asset, and, therefore,
ASLB 21 will apply.
20A. For the purposes of impairment, goodwill is considered a cash-
generating asset. Goodwill does not generate economic benefits
independently of other assets, and is assessed for impairment as part
of a group of assets. This Standard deals with the assessment of
individual assets. Goodwill is only recognised where it gives rise to
cash inflows or reductions in an acquirer‟s net cash outflows, no
goodwill is recognised in respect of service potential that does not give
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Compendium of Accounting Standards for Local Bodies (ASLBs)
rise to related cash flows. The recoverable service amount used to
assess impairment in this Standard includes service potential.
Consequently, an entity applies ASLB 26 rather than this Standard to
determine whether to impair goodwill.
21. Assets held by local bodies with the primary objective of generating a
commercial return are cash-generating assets. Entities may hold
assets to generate a commercial return. For the purposes of this
Standard, an asset held by an entity is classified as a cash-generating
asset if the asset (or unit of which the asset is a part) is operated with
the objective of generating a commercial return through the provision
of goods and/or services to external parties.
Depreciation
22. Depreciation and amortisation are the systematic allocation of the
depreciable amount of an asset over its useful life. In the case of an
intangible asset, the term amortisation is generally used instead of
depreciation. Both terms have the same meaning.
Impairment
23. This Standard defines an impairment as a loss in the future economic
benefits or service potential of an asset, over and above the
systematic recognition of the loss of the asset‟s future economic
benefits or service potential through depreciation (amortisation).
Impairment of non-cash-generating asset, therefore, reflects a decline
in the service potential/utility of an asset to the entity that controls it.
For example, a local body hospital may have a medical waste
incinerator that it no longer uses. In addition, because of the
specialised nature of the facility and its location, it is unlikely that it can
be leased out or sold, and therefore the entity is unable to generate
cash flows from leasing or disposing of the asset. The asset is
regarded as impaired, as it is no longer capable of providing the entity
with service potential – it has little, or no, utility for the entity in
contributing to the achievement of its objectives.
Identifying an Asset that may be Impaired
24. Paragraphs 26−34 specify when recoverable service amounts would
be determined.
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25. A non-cash-generating asset is impaired when the carrying amount of
the asset exceeds its recoverable service amount. Paragraph 27
identifies key indications that an impairment loss may have occurred. If
any of those indications are present, an entity is required to make a
formal estimate of recoverable service amount. If no indication of a
potential impairment loss is present, this Standard does not require an
entity to make a formal estimate of recoverable service amount.
26. An entity should assess at each reporting date whether there is
any indication that an asset may be impaired. If any such
indication exists, the entity should estimate the recoverable
service amount of the asset.
26A. Irrespective of whether there is any indication of impairment, an
entity should also test an intangible asset not yet available for
use for impairment annually by comparing its carrying amount
with its recoverable service amount. This impairment test may be
performed at any time during the reporting period, provided it is
performed at the same time every year. Different intangible assets
may be tested for impairment at different times. However, if such
an intangible asset was initially recognised during the current
reporting period, that intangible asset should be tested for
impairment before the end of the current reporting period.
26B. The ability of an intangible asset to generate sufficient future economic
benefits or service potential to recover its carrying amount is usually
subject to greater uncertainty before the asset is available for use than
after it is available for use. Therefore, this Standard requires an entity
to test for impairment, at least annually, the carrying amount of an
intangible asset that is not yet available for use.
27. In assessing whether there is any indication that an asset may be
impaired, an entity should consider, as a minimum, the following
indications:
External sources of information
(a) Cessation, or near cessation, of the demand or need for
services provided by the asset;
(b) Significant long-term changes with an adverse effect on the
entity have taken place during the period, or will take place
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in the near future, in the technological, legal, or government
policy environment in which the entity operates;
Internal sources of information
(c) Evidence is available of physical damage of an asset;
(d) Significant long-term changes with an adverse effect on the
entity have taken place during the period, or are expected
to take place in the near future, in the extent to which, or
manner in which, an asset is used or is expected to be
used. These changes include the asset becoming idle,
plans to discontinue or restructure the operation to which
an asset belongs, or plans to dispose off an asset before
the previously expected date;
(e) A decision to halt the construction of the asset before it is
complete or in a usable condition; and
(f) Evidence is available from internal reporting that indicates
that the service performance of an asset is, or will be,
significantly worse than expected.
28. The demand or need for services may fluctuate over time, which will
affect the extent to which non-cash-generating assets are utilised in
providing those services, but negative fluctuations in demand are not
necessarily indications of impairment. Where demand for services
ceases, or nearly ceases, the assets used to provide those services
may be impaired. Demand may be considered to have nearly ceased
when it is so low that the entity (a) would not have attempted to
respond to that demand, or (b) would have responded by not acquiring
the asset being considered for impairment testing.
29. The list in paragraph 27 is not exhaustive. There may be other
indications that an asset may be impaired. The existence of other
indications may result in the entity estimating the asset‟s recoverable
service amount. For example, any of the following may be an
indication of impairment:
(a) During the period, an asset‟s market value has declined
significantly more than would be expected as a result of the
passage of time or normal use; or
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Impairment of Non-Cash-Generating Assets
(b) A significant long-term decline (but not necessarily cessation or
near cessation) in the demand for or need for services provided
by the asset.
30. The events or circumstances that may indicate an impairment of an
asset will be significant, and will often have prompted discussion by
the governing board, management, or media. A change in a parameter
such as demand for the service, extent or manner of use, legal
environment, or government policy environment would indicate
impairment only if such a change was significant, and had or was
anticipated to have a long-term adverse effect. A change in the
technological environment may indicate that an asset is obsolete, and
requires testing for impairment. A change in the use of an asset during
the period may also be an indication of impairment. This may occur
when, for example, a building used as a hospital undergoes a change
in use and is used for storage. In assessing whether an impairment
has occurred, the entity needs to assess changes in service potential
over the long-term. This underlines the fact that the changes are seen
within the context of the anticipated long-term use of the asset.
However, the expectations of long-term use can change, and the
entity‟s assessments at each reporting date would reflect that. The
Implementation Guidance sets out examples of impairment indications
referred to in paragraph 27.
31. In assessing whether a halt in construction would trigger an
impairment test, the entity would consider (a) whether construction has
simply been delayed or postponed, (b) whether there is an intention to
resume construction in the near future, or (c) whether the construction
work will not be completed in the foreseeable future. Where
construction is delayed or postponed to a specific future date, the
project may be treated as work-in-progress and is not considered as
halted.
32. Evidence from internal reporting that indicates that an asset may be
impaired, as referred to in paragraph 27(f) above, relates to the ability
of the asset to provide goods or services rather than to a decline in the
demand for the goods or services provided by the asset. This includes
the existence of:
(a) Significantly higher costs of operating or maintaining the asset,
compared with those originally budgeted; and
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Compendium of Accounting Standards for Local Bodies (ASLBs)
(b) Significantly lower service or output levels provided by the
asset, compared with those originally expected due to poor
operating performance.
A significant increase in operating costs of an asset may indicate that
the asset is not as efficient or productive as initially anticipated in
output standards set by the manufacturer, in accordance with which
the operating budget was drawn up. Similarly, a significant increase in
maintenance costs may indicate that higher costs need to be incurred
to maintain the asset‟s performance at a level indicated by its most
recently assessed standard of performance. In other cases, direct
quantitative evidence of an impairment may be indicated by a
significant long-term fall in the expected service or output levels
provided by the asset.
33. The concept of materiality applies in identifying whether the
recoverable service amount of an asset needs to be estimated. For
example, if previous assessments show that an asset‟s recoverable
service amount is significantly greater than its carrying amount, the
entity need not re-estimate the asset‟s recoverable service amount if
no events have occurred that would eliminate that difference. Similarly,
previous analysis may show that an asset‟s recoverable service
amount is not sensitive to one (or more) of the indications listed in
paragraph 27.
34. If there is an indication that an asset may be impaired, this may
indicate that (a) the remaining useful life, (b) the depreciation
(amortisation) method, or (c) the residual value for the asset needs to
be reviewed and adjusted in accordance with the ASLB applicable to
the asset, even if no impairment loss is recognised for the asset.
Measuring Recoverable Service Amount
35. This Standard defines recoverable service amount as the higher of an
asset‟s “fair value, less costs to sell”, and its value in use. Paragraphs
36-50 set out the basis for measuring recoverable service amount.
36. It is not always necessary to determine both an asset‟s “fair value less
costs to sell” and its value in use. If either of these amounts exceeds
the asset‟s carrying amount, the asset is not impaired, and it is not
necessary to estimate the other amount.
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37. It may be possible to determine “fair value less costs to sell”, even if
an asset is not traded in an active market. Paragraph 42 sets out
possible alternative bases for estimating “fair value less costs to sell”
when an active market for the asset does not exist. However,
sometimes it will not be possible to determine “fair value less costs to
sell”, because there is no basis for making a reliable 7 estimate of the
amount obtainable from the sale of the asset in an arm‟s length
transaction between knowledgeable and willing parties. In this case,
the entity may use the asset‟s value in use as its recoverable service
amount.
38. If there is no reason to believe that an asset‟s value in use materially
exceeds its “fair value less costs to sell”, the asset‟s “fair value less
costs to sell” may be used as its recoverable service amount. This will
often be the case for an asset that is held for disposal. This is because
the value in use of an asset held for disposal will consist mainly of the
net disposal proceeds. However, for many local body‟s non-cash-
generating assets that are held on an ongoing basis to provide
specialised services or public goods to the community, the value in
use of the asset is likely to be greater than its “fair value less costs to
sell”.
39. In some cases, estimates, averages, and computational shortcuts may
provide reasonable approximations of the detailed computations
illustrated in this Standard for determining “fair value less costs to sell”
or value in use.
39A. [Refer to Appendix 1]
Fair Value Less Costs to Sell
40. The best evidence of an asset‟s “fair value less costs to sell” is a price
in a binding sale agreement in an arm‟s length transaction, adjusted
for incremental costs that would be directly attributable to the disposal
of the asset.
41. If there is no binding sale agreement, but an asset is traded in an
active market, “fair value less costs to sell” is the asset‟s market price
less the costs of disposal. The appropriate market price is usually the
7 Information that is reliable is free from material error and bias, and can be depended on
by users to faithfully represent that it purports to represent or could reasonably be
expected to represent.
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current bid price. When current bid prices are unavailable, the price of
the most recent transaction may provide a basis from which to
estimate “fair value less costs to sell”, provided that there has not
been a significant change in economic circumstances between the
transaction date and the date as at which the estimate is made.
42. If there is no binding sale agreement or active market for an asset,
“fair value less costs to sell” is based on the best information available
to reflect the amount that an entity could obtain, at reporting date, from
the disposal of the asset in an arm‟s length transaction between
knowledgeable, willing parties, after deducting the costs of disposal. In
determining this amount, an entity could consider the outcome of
recent transactions for similar assets within the same industry. “Fair
value less costs to sell” does not reflect a forced sale, unless
management or the governing body is compelled to sell immediately.
43. Costs of disposal, other than those that have been recognised as
liabilities, are deducted in determining “fair value less costs to sell”.
Examples of such costs are legal costs, stamp duty and similar
transaction taxes, costs of removing the asset, and direct incremental
costs to bring an asset into condition for its sale. However, termination
benefits (as defined in ASLB 39, „Employee Benefits‟) and costs
associated with reducing or reorganising an operation following the
disposal of an asset, are not direct incremental costs to dispose of f the
asset.
Value in Use
44. This Standard defines the value in use of a non-cash-generating asset
as the present value of the asset‟s remaining service potential. Value
in use in this Standard refers to value in use of a non-cash-generating
asset, unless otherwise specified. The present value of the remaining
service potential of the asset is determined using any one of the
approaches identified in paragraphs 45-49, as appropriate.
Depreciated Replacement Cost Approach
45. Under this approach, the present value of the remaining service
potential of an asset is determined as the depreciated replacement
cost of the asset. The replacement cost of an asset is the cost to
replace the asset‟s gross service potential. This cost is depreciated to
reflect the asset in its used condition. An asset may be replaced either
through reproduction (replication) of the existing asset or through
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replacement of its gross service potential. The depreciated
replacement cost is measured as the reproduction or replacement cost
of the asset, whichever is lower, less accumulated depreciation
calculated on the basis of such cost, to reflect the already consumed
or expired service potential of the asset.
46. The replacement cost and reproduction cost of an asset are
determined on an optimised basis. The rationale is that the entity
would not replace or reproduce the asset with a like asset if the asset
to be replaced or reproduced is an overdesigned or overcapacity
asset. Overdesigned assets contain features that are unnecessary for
the goods or services the asset provides. Overcapacity assets are
assets that have a greater capacity than is necessary to meet the
demand for goods or services the asset provides. The determination of
the replacement cost or reproduction cost of an asset on an optimised
basis thus reflects the service potential required of the asset.
47. In certain cases, standby or surplus capacity is held for safety or other
reasons. This arises from the need to ensure that adequate service
capacity is available in the particular circumstances of the entity. For
example, the fire department needs to have fire engines on standby to
deliver services in emergencies. Such surplus or standby capacity is
part of the required service potential of the asset.
Restoration Cost Approach
48. Restoration cost is the cost of restoring the service potential of an
asset to its pre-impaired level. Under this approach, the present value
of the remaining service potential of the asset is determined by
subtracting the estimated restoration cost of the asset from the current
cost of replacing the remaining service potential of the asset before
impairment. The latter cost is usually determined as the depreciated
reproduction or replacement cost of the asset, whichever is lower.
Paragraphs 45 and 47 include additional guidance on determining the
replacement cost or reproduction cost of an asset.
Service Units Approach
49. Under this approach, the present value of the remaining service
potential of the asset is determined by reducing the current cost of the
remaining service potential of the asset before impairment to conform
with the reduced number of service units expected from the asset in its
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impaired state. As in the restoration cost approach, the current cost of
replacing the remaining service potential of the asset before
impairment is usually determined as the depreciated reproduction or
replacement cost of the asset before impairment, whichever is lower.
Application of Approaches
50. The choice of the most appropriate approach to measuring value in
use depends on the availability of data and the nature of the
impairment:
(a) Impairments identified from significant long-term changes in the
technological, legal, or government policy environment are
generally measurable using a depreciated replacement cost
approach or a service units approach, when appropriate;
(b) Impairments identified from a significant long-term change in the
extent or manner of use, including that identified from the
cessation or near cessation of demand, are generally
measurable using a depreciated replacement cost or a service
units approach, when appropriate; and
(c) Impairments identified from physical damage are generally
measurable using a restoration cost approach or a depreciated
replacement cost approach, when appropriate.
Recognising and Measuring an Impairment Loss
51. Paragraphs 52-57 set out the requirements for recognising and
measuring impairment losses for an asset. In this Standard,
impairment loss refers to impairment loss of a non-cash-generating
asset unless otherwise specified.
52. If, and only if, the recoverable service amount of an asset is less
than its carrying amount, the carrying amount of the asset should
be reduced to its recoverable service amount. That reduction is
an impairment loss.
53. As noted in paragraph 26, this Standard requires an entity to make a
formal estimate of recoverable service amount only if an indication of a
potential impairment loss is present. Paragraphs 27−33 identify key
indications that an impairment loss may have occurred.
54. An impairment loss should be recognised immediately in surplus
or deficit, unless the asset is carried at revalued amount in
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accordance with another Standard (for example, in accordance
with the revaluation model in ASLB 17 and ASLB 31). Any
impairment loss of a revalued asset should be treated as a
revaluation decrease in accordance with that other Standard.
54A. An impairment loss on a non-revalued asset is recognised in surplus
or deficit. However, an impairment loss on a revalued asset is
recognised in revaluation surplus to the extent that the impairment loss
does not exceed the amount in the revaluation surplus for that class of
assets. Such an impairment loss on a revalued asset reduces the
revaluation surplus for that class of assets.
55. When the amount estimated for an impairment loss is greater
than the carrying amount of the asset to which it relates, an entity
should recognise a liability if, and only if, that is required by
another ASLB.
56. Where the estimated impairment loss is greater than the carrying
amount of the asset, the carrying amount of the asset is reduced to
zero, with a corresponding amount recognised in surplus or deficit. A
liability would be recognised only if another ASLB so requires. An
example is when a municipal building (community hall/warehouse) is
no longer used as the area has been declared as green zone and the
entity is required by law to remove the said building. The entity may
need to make a provision for dismantling costs if required by ASLB 19,
„Provisions, Contingent Liabilities and Contingent Assets‟.
57. After the recognition of an impairment loss, the depreciation
(amortisation) charge for the asset should be adjusted in future
periods to allocate the asset‟s revised carrying amount, less its
residual value (if any), on a systematic basis over its remaining
useful life.
Reversing an Impairment Loss
58. Paragraphs 59-70 set out the requirements for reversing an
impairment loss recognised for an asset in prior periods.
59. An entity should assess at each reporting date whether there is
any indication that an impairment loss recognised in prior periods
for an asset may no longer exist or may have decreased. If any
such indication exists, the entity should estimate the recoverable
service amount of that asset.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
60. In assessing whether there is any indication that an impairment
loss recognised in prior periods for an asset may no longer exist
or may have decreased, an entity should consider, as a minimum,
the following indications:
External sources of information
(a) Resurgence of the demand or need for services provided by
the asset;
(b) Significant long-term changes with a favourable effect on
the entity have taken place during the period, or will take
place in the near future, in the technological, legal, or
government policy environment in which the entity
operates;
Internal sources of information
(c) Significant long-term changes with a favourable effect on
the entity have taken place during the period, or are
expected to take place in the near future, in the extent to
which, or manner in which, the asset is used or is expected
to be used. These changes include costs incurred during
the period to improve or enhance an asset‟s performance or
restructure the operation to which the asset belongs;
(d) A decision to resume construction of the asset that was
previously halted before it was completed or in a usable
condition; and
(e) Evidence is available from internal reporting that indicates
that the service performance of the asset is, or will be,
significantly better than expected.
61. Indications of a potential decrease in an impairment loss in paragraph
60 mainly mirror the indications of a potential impairment loss in
paragraph 27.
62. The list in paragraph 60 is not exhaustive. An entity may identify other
indications of a reversal of an impairment loss that would also require
the entity to re-estimate the asset‟s recoverable service amount. For
example, either of the following may be an indication that the
impairment loss may have reversed:
(a) A significant rise in an asset‟s market value; or
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(b) A significant long-term increase in the demand or need for the
services provided by the asset.
63. A commitment to discontinue or restructure an operation in the near
future is an indication of a reversal of an impairment loss of an asset
belonging to the operation, where such a commitment constitutes a
significant long-term change, with a favourable effect on the entity, in
the extent or manner of use of that asset. Circumstances where such a
commitment would be an indication of reversal of impairment often
relate to cases where the expected discontinuance or restructuring of
the operation would create opportunities to enhance the utilisation of
the asset. An example is an x-ray machine that has been underutilised
by a clinic managed by a local body hospital and, as a result of
restructuring, is expected to be transferred to the main radiology
department of the hospital where it will have significantly better
utilisation. In such a case, the commitment to discontinue or
restructure the clinic‟s operation may be an indication that an
impairment loss recognised for the asset in prior periods may have to
be reversed.
64. If there is an indication that an impairment loss recognised for an asset
may no longer exist or may have decreased, this may indicate that (a)
the remaining useful life, (b) the depreciation (amortisation) method, or
(c) the residual value may need to be reviewed and adjusted in
accordance with the ASLB applicable to the asset, even if no
impairment loss is reversed for the asset.
65. An impairment loss recognised in prior periods for an asset
should be reversed if, and only if, there has been a change in the
estimates used to determine the asset‟s recoverable service
amount since the last impairment loss was recognised. If this is
the case, the carrying amount of the asset should, except as
described in paragraph 68, be increased to its recoverable service
amount. That increase is a reversal of an impairment loss.
66. This Standard requires an entity to make a formal estimate of
recoverable service amount only if an indication of a reversal of an
impairment loss is present. Paragraph 60 identifies key indications that
an impairment loss recognised for an asset in prior periods may no
longer exist or may have decreased.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
67. A reversal of an impairment loss reflects an increase in the estimated
recoverable service amount of an asset, either from use or from sale,
since the date when an entity last recognised an impairment loss for
that asset. Paragraph 77 requires an entity to identify the change in
estimates that causes the increase in recoverable service amount.
Examples of changes in estimates include:
(a) A change in the basis for recoverable service amount (i.e.,
whether recoverable service amount is based on “fair value less
costs to sell” or value in use);
(b) If recoverable service amount was based on value in use, a
change in estimate of the components of value in use; or
(c) If recoverable service amount was based on “fair value less
costs to sell”, a change in estimate of the components of “fair
value less costs to sell”.
68. The increased carrying amount of an asset attributable to a
reversal of an impairment loss should not exceed the carrying
amount that would have been determined (net of depreciation or
amortisation) if no impairment loss had been recognised for the
asset in prior periods.
69. A reversal of an impairment loss for an asset should be
recognised immediately in surplus or deficit, unless the asset is
carried at revalued amount in accordance with another Standard
(for example, the revaluation model in ASLB 17 and ASLB 31).
Any reversal of an impairment loss of a revalued asset should be
treated as a revaluation increase in accordance with that other
Standard.
69A. A reversal of an impairment loss on a revalued asset is recognised
directly in the revaluation reserve and increases the revaluation
surplus for that class of assets. However, to the extent that an
impairment loss on the same class of revalued assets was previously
recognised in surplus or deficit, a reversal of that impairment loss is
also recognised in surplus or deficit.
70. After a reversal of an impairment loss is recognised, the
depreciation (amortisation) charge for the asset should be
adjusted in future periods to allocate the asset‟s revised carrying
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Impairment of Non-Cash-Generating Assets
amount, less its residual value (if any), on a systematic basis over
its remaining useful life.
Redesignation of Assets
71. The redesignation of assets from cash-generating assets to non-
cash-generating assets or from non-cash-generating assets to
cash-generating assets should only occur when there is clear
evidence that such a redesignation is appropriate. A
redesignation, by itself, does not necessarily trigger an
impairment test or a reversal of an impairment loss. Instead, the
indication for an impairment test or a reversal of an impairment
loss arises from, as a minimum, the listed indications applicable
to the asset after redesignation.
72. There are circumstances in which entities may decide that it is
appropriate to redesignate a non-cash-generating asset as a cash-
generating asset. For example, an effluent treatment plant was
constructed primarily to treat industrial effluent from a social housing
unit, for which no charge is made. The social housing unit has been
demolished, and the site will be developed for industrial and retail
purposes. It is intended that, in future, the plant will be used to treat
industrial effluent at commercial rates. In light of this decision, the
entity decides to redesignate the effluent treatment plant as a cash -
generating asset.
Disclosure
72A. An entity should disclose the criteria developed by the entity to
distinguish non-cash-generating assets from cash-generating
assets.
73. An entity should disclose the following for each class of assets:
(a) The amount of impairment losses recognised in surplus or
deficit during the period, and the line item(s) of the
statement of income and expenditure in which those
impairment losses are included; and
(b) The amount of reversals of impairment losses recognised
in surplus or deficit during the period, and the line item(s)
of the statement of income and expenditure in which those
impairment losses are reversed;
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Compendium of Accounting Standards for Local Bodies (ASLBs)
(c) The amount of impairment losses on revalued assets
recognised directly in revaluation surplus during the
period; and
(d) The amount of reversals of impairment losses on revalued
assets recognised directly in revaluation surplus during the
period.
73A. [Deleted]
74. A class of assets is a grouping of assets of similar nature and use in
an entity‟s operations.
75. The information required in paragraph 73 may be presented with other
information disclosed for the class of assets. For example, this
information may be included in a reconciliation of the carrying amount
of property, plant, and equipment, at the beginning and end of the
period, as required by ASLB 17.
76. An entity that reports segment information in accordance with
ASLB 18, „Segment Reporting‟, should disclose the following for
each segment reported by the entity:
(a) The amount of impairment losses recognised in surplus or
deficit during the period; and
(b) The amount of reversals of impairment losses recognised
in surplus or deficit during the period.
77. An entity should disclose the following for each material
impairment loss recognised or reversed during the period:
(a) The events and circumstances that led to the recognition or
reversal of the impairment loss;
(b) The amount of the impairment loss recognised or reversed;
(c) The nature of the asset;
(d) The segment to which the asset belongs, if the entity
reports segment information in accordance with ASLB 18;
(e) Whether the recoverable service amount of the asset is its
“fair value less costs to sell” or its value in use;
(f) If the recoverable service amount is “fair value less costs to
sell”, the basis used to determine “fair value less costs to
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Impairment of Non-Cash-Generating Assets
sell” (such as whether fair value was determined by
reference to an active market); and
(g) If the recoverable service amount is value in use, the
approach used to determine value in use.
78. An entity should disclose the following information for the
aggregate of impairment losses and aggregate reversals of
impairment losses recognised during the period for which no
information is disclosed in accordance with paragraph 77:
(a) The main classes of assets affected by impairment losses
(and the main classes of assets affected by reversals of
impairment losses); and
(b) The main events and circumstances that led to the
recognition of these impairment losses and reversals of
impairment losses.
79. An entity is encouraged to disclose key assumptions used to
determine the recoverable service amount of assets during the period.
80-83. [Refer to Appendix 1]
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Implementation Guidance
This guidance accompanies, but is not part of, ASLB 21.
Indications of Impairment (paragraph 27)
External Sources of Information
(a) Cessation, or Near Cessation, of the Demand or Need for Services
Provided by the Asset.
IG1. The asset still maintains the same service potential, but demand for
that service has ceased or nearly ceased. Examples of assets
impaired in this manner include:
(a) A school closed because of a lack of demand for school
services, arising from a population shift to other areas. It is not
anticipated that this demographic trend affecting the demand for
the school services will reverse in the foreseeable future;
(b) A school designed for 1,500 students currently has an
enrolment of 150 students – the school cannot be closed
because the nearest alternative school is 100 kilometres away.
The entity does not envisage the enrolment increasing. At the
time of establishment, enrolment was 1,400 students – the
entity would have acquired a much smaller facility had future
enrolment been envisaged to be 150 students. The entity
determines that demand has nearly ceased, and the
recoverable service amount of the school should be compared
with its carrying amount; and
(c) A stadium whose principal occupant does not renew its
occupancy agreement, with the result that the facility is
expected to close.
(b) Significant Long-Term Changes with an Adverse Effect on the
Entity in the Technological, Legal, or Government Policy
Environment in Which the Entity Operates.
Technological Environment
IG2. The service utility of an asset may be reduced if technology has
advanced to produce alternatives that provide better or more efficient
service. Examples of assets impaired in this manner are:
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Impairment of Non-Cash-Generating Assets
(a) Medical diagnostic equipment that is rarely or never used
because a newer machine embodying more advanced
technology provides more accurate results (would also meet
indication (a) above);
(b) Software that is no longer being supported by the external
supplier because of technological advances, and the entity does
not have the personnel to maintain the software; and
(c) Computer hardware that has become obsolete as the result of
technological development.
Legal or Government Policy Environment
IG3. An asset‟s service potential may be reduced as a result of a change in
a law or regulation. Examples of impairments identified by this
indication include:
(a) An automobile (Bus) that does not meet new emission
standards or new noise standards;
(b) A school that can no longer be used for instruction purposes
due to new safety regulations regarding its building materials or
emergency exits; and
(c) A drinking water plant that cannot be used because it does not
meet new environmental standards.
Internal Sources of Information
(c) Evidence is Available of Physical Damage of an Asset.
IG4. Physical damage would likely result in the asset being unable to
provide the level of service that it once was able to provide. Examples
of assets impaired in this way include:
(a) A building damaged by fire or flood or other factors;
(b) A building that is closed due to identification of structural
deficiencies;
(c) Sections of an elevated roadway that have sagged, indicating
that these sections of roadway will need to be replaced in 15
years rather than the original design life of 30 years;
(d) A dam whose spillway has been reduced as a result of a
structural assessment;
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Compendium of Accounting Standards for Local Bodies (ASLBs)
(e) A water treatment plant whose capacity has been reduced by an
intake blockage, and the removal of the blockage is not
economical;
(f) A bridge that is weight-restricted due to identification of
structural deficiencies; and
(g) Equipment that is damaged and can no longer be repaired, or
for which repairs are not economically feasible.
(d) Significant Long-Term Changes, with an Adverse Effect on the
Entity, in the Extent to Which an Asset is Used, or is Expected to
be Used.
IG5. The asset still maintains the same service potential, but long-term
changes have an adverse effect on the extent to which the asset is
used. Examples of circumstances in which assets may be impaired in
this manner include:
(a) If an asset is not being used to the same degree as it was when
originally put into service, or the expected useful life of the asset
is shorter than originally estimated, the asset may be impaired.
An example of an asset that might be identified as potentially
being impaired by this indication is a mainframe computer that
is underutilized, because many applications have been
converted or developed to operate on servers or PC platforms.
A significant long-term decline in the demand for an asset‟s
services may translate itself into a significant long-term change
in the extent to which the asset is used; and
(b) If the asset is not being used in the same way as it was when
originally put into service, the asset may be impaired. An
example of an impaired asset that might be identified by this
indication is a Community hall that is being used for storage
rather than for letting out purposes.
(e) A decision to Halt the Construction of the Asset Before it is
Complete or in a Usable Condition.
IG6. An asset that will not be completed cannot provide the service
intended.
Examples of assets impaired in this manner include those where:
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Impairment of Non-Cash-Generating Assets
(a) Construction was stopped due to identification of an
archaeological discovery or environmental condition, such as a
nesting ground for a threatened or endangered species; or
(b) Construction was stopped due to a decline in the economy.
The circumstances that led to the halting of construction will also be
considered. If construction is deferred, that is, postponed to a specific
future date, the project could still be treated as work-in-progress, and
is not considered as halted.
(f) Evidence is Available from Internal Reporting that Indicates that
the Service Performance of an Asset is, or will be, Significantly
Worse than Expected.
IG7. Internal reports may indicate that an asset is not performing as
expected, or its performance is deteriorating over time. For example,
an internal health department report on operations of a rural clinic may
indicate that an x-ray machine used by the clinic is impaired because
the cost of maintaining the machine has significantly exceeded that
originally budgeted.
IG8. Internal report states that the x-ray machine emits harmful radiation
and also inspected by concerned Government department that there is
a need to close that facility down permanently in the interest of public
health safety norms. It indicates that the aforesaid machine is
impaired.
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Illustrative Examples
These examples accompany, but are not part of, ASLB 21.
Measurement of Impairment Loss
Note: In the following examples, it is assumed that the “fair value less costs
to sell” of the asset tested for impairment is less than its value in use or is not
determinable, unless otherwise indicated. Therefore, the asset‟s recoverable
service amount is equal to its value in use. In these examples, the straight -
line method of depreciation is used.
Depreciated Replacement Cost Approach
Significant Long-term Change with Adverse Effect on the Entity in the
Technological Environment—Underutilised Mainframe Computer
IE1. In 1999, a Local Body „A‟ purchased a new mainframe computer at a
cost of Rs.10 million8. Local body „A‟ estimated that the useful life of the
computer would be seven years, and that on average 80 percent of
central processing unit (CPU) capacity would be used by the various
departments. A buffer of excess CPU time of 20 percent was expected
and needed to accommodate scheduling jobs to meet peak period
deadlines. Within a few months after acquisition, CPU usage reached
80 percent, but declined to 20 percent in 2003 because many
applications of the departments were converted to run on desktop
computers or servers. A computer is available on the market at a price
of ` 500,000 that can provide the remaining service potential of the
mainframe computer using the remaining applications.
Evaluation of Impairment
The indication of impairment is the significant long-term change in the
technological environment resulting in conversion of applications from
the mainframe to other platforms, and therefore, decreased usage of
the mainframe computer. (Alternatively it can be argued that a
significant decline in the extent of use of the mainframe indicates
impairment.) Impairment loss is determined using the depreciated
replacement cost approach as follows:
8 In these examples monetary amounts are denominated in “rupees” (Rs.).
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Impairment of Non-Cash-Generating Assets
a Acquisition cost, 1999 10,000,000
Accumulated depreciation, 2003 (a × 4 ÷ 7 ) 5,714,286
b Carrying amount, 2003 4,285,714
c Replacement cost 500,000
Accumulated depreciation (c × 4 ÷ 7) 285,714
d Recoverable Service Amount 214,286
Impairment loss (b – d) 4,071,428
Near Cessation in Demand for the Services Provided by a Non-cash-
Generating Asset—Underutilised Mainframe Software Application
IE3. In 1999, a local body B purchased a software license for an application
for its new mainframe computer for ` 350,000. Local body B estimated
that the useful life of the software would be seven years, and that it
would receive economic benefits and service potential from the
software on a straight-line basis over the life of the software. By 2003,
usage of the application had declined to 15 percent of its originally
anticipated demand. A license for a software application to replace the
remaining service potential of the impaired software application costs `
70,000.
Evaluation of Impairment
IE4. The indication of impairment is technological change, brought about by
the loss of mainframe computer capacity.
a Acquisition cost, 1999 350,000
Accumulated depreciation, 2003 (a × 4 ÷ 7 ) 200,000
b Carrying amount, 2003 150,000
c Replacement cost 70,000
Accumulated amortisation (c × 4 ÷ 7) 40,000
d Recoverable Service Amount 30,000
Impairment loss (b – d) 120,000
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Significant Long-term Change with Adverse Effect on the Entity in the
Manner of Use—Hospital building Used as Warehouse
IE5. In 1997, Local Body constructed a hospital at a cost of ` 10 million.
The estimated useful life of the hospital is fifty years. In 2003, the
hospital is closed due to a population shift caused by less employment
opportunity in the area and non-availability of advanced facility at the
hospital. The hospital is converted to use as a storage warehouse, and
Local Body has no expectation that the building would be reopened for
use as a hospital. The current replacement cost for a warehouse with
the same storage capacity as the hospital is ` 4.2 million.
Evaluation of Impairment
IE6. Impairment is indicated, because the purpose for which the building is
used has changed significantly from a hospital building to a storage
facility, and this is not anticipated to change for the foreseeable future.
An impairment loss using depreciated replacement cost approach
would be determined as follows:
a Historical cost, 1997 10,000,000
Accumulated depreciation, 2003 (a × 6 ÷ 50) 1,200,000
b Carrying amount, 2003 8,800,000
c Replacement cost of a storage facility of 4,200,000
similar capacity
Accumulated depreciation (c × 6 ÷ 50) 504,000
d Recoverable Service Amount 3,696,000
Impairment loss (b - d) 5,104,000
Significant Long-term Change with Adverse Effect on the Entity in the Extent
of Use— School Partially Closed Due to Decline in Enrolment
IE7. In 1983, the Local Body A constructed a school at the cost of ` 2.5
million. The entity estimated the school would be used for 40 years. In
2003, the enrolment declined from 1000 to 200 students as the result
of population shift caused by the bankruptcy of a major employer in
the area. The management decided to close the top two floors of the
three-story school building. Local Body A has no expectation that
enrolments will increase in the future such that the upper stories would
be reopened. The current replacement cost of the one-story school is
estimated at ` 1.3 million.
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Impairment of Non-Cash-Generating Assets
Evaluation of Impairment
IE8. Impairment is indicated because the extent of use of the school has
changed from three floors to one floor as the result of a reduction in
the number of students from 1000 to 200 students. The reduction in
the extent of use is significant, and the enrolment is expected to
remain at the reduced level for the foreseeable future. Impairment loss
using a depreciated replacement cost approach would be determined
as follows:
a Acquisition cost, 1983 2,500,000
Accumulated depreciation, 2003
(a × 20 ÷ 40) 1,250,000
b Carrying amount, 2003 1,250,000
c Replacement cost 1,300,000
Accumulated depreciation (c × 20 ÷ 40) 650,000
d Recoverable Service Amount 650,000
Impairment loss (b - d) 600,000
Restoration Cost Approach
Physical Damage—School Bus Damaged in Road
IE9. In 1998, Local body X Primary School acquired a bus at the cost of `
200,000 to help students from a nearby village to commute free of
charge. The school estimated a useful life of 10 years for the bus. In
2003, the bus sustained damage in a road accident, requiring ` 40,000
to be restored to a usable condition. The restoration will not affect the
useful life of the asset. The cost of a new bus to deliver a similar
service is ` 250,000 in 2003.
Evaluation of Impairment
IE10. Impairment is indicated because the bus has sustained physical
damage in the road accident. Impairment loss using the restoration
cost approach would be determined as follows:
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Compendium of Accounting Standards for Local Bodies (ASLBs)
a Acquisition cost, 1998 200,000
Accumulated depreciation, 2003 (a × 5 ÷ 10) 100,000
b Carrying amount, 2003 100,000
c Replacement cost 250,000
Accumulated depreciation (c × 5 ÷ 10) 125,000
d Depreciated replacement cost (undamaged state) 125,000
Less: restoration cost 40,000
e Recoverable Service Amount 85,000
Impairment loss (b - e) 15,000
Physical Damage—Building damaged by fire
IE11. In 1984, the Local body Y built an office building at a cost of ` 50
million. The building was expected to provide service for 40 years. In
2003, after 19 years of use, fire caused severe structural problems.
Due to safety reasons, the office building is closed, and structural
repairs costing ` 35.5 million are to be made to restore the office
building to an occupiable condition. The replacement cost of a new
office building is ` 100 million.
Evaluation of Impairment
IE12. Impairment is indicated because the office building has sustained
physical damage due to the fire. Impairment loss using a restoration
cost approach would be determined as follows:
a Acquisition cost, 1984 50,000,000
Accumulated depreciation, 2003 (a × 19 ÷ 40) 23,750,000
b Carrying amount, 2003 26,250,000
c Replacement cost (of a new building) 100,000,000
d Accumulated depreciation (c × 19 ÷ 40) 47,500,000
Depreciated replacement cost (undamaged) 52,500,000
Less: restoration cost 35,500,000
e Recoverable Service Amount 17,000,000
Impairment loss (b - e) 9,250,000
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Impairment of Non-Cash-Generating Assets
Service Units Approach
Significant Long-term Change with Adverse Effect on the Entity in the Extent
of Use— High-rise Building Partially Unoccupied for the Foreseeable Future
IE13. In 1988, local body Z constructed a 20-storey office building for use by
the Council at the cost of ` 80 million. The building was expected to
have a useful life of 40 years. In 2003, National Safety Regulations
required that the top four stories of high rise buildings should be left
unoccupied for the foreseeable future. The building has a “fair value
less costs to sell” of ` 45 million in 2003 after regulations came into
force. The current replacement cost of a similar 20-storey building is `
85 million.
Evaluation of Impairment
IE14. Impairment is indicated because the extent of use of the office building
has changed from 20 floors to 16 floors as the result of new National
Safety Regulations. The reduction in the extent of use is significant,
and the occupation of the building is expected to remain at the
reduced level (16 floors) for the foreseeable future. Impairment loss
using the service units approach would be determined as follows:
(a) Acquisition cost, 1988 80,000,000
Accumulated depreciation, 2003 (a × 15 ÷ 40) 30,000,000
(b) Carrying amount, 2003 50,000,000
(c) Replacement cost (20-story building 85,000,000
Accumulated depreciation (c × 15 ÷ 40) 31,875,000
(d) Depreciated replacement cost before 53,125,000
adjustment for remaining service units
(e) Value in Use of the building after the 42,500,000
regulation came into force (d × 16 ÷ 20)
(f) Fair value less costs to sell of the building 45,000,000
after regulation came into force
(g) Recoverable service amount (higher of e and 45,000,000
f) Impairment loss (b – g)
5,000,000
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Compendium of Accounting Standards for Local Bodies (ASLBs)
Evidence from Internal Reporting—Higher Cost of Operating the Printing
Machine
IE15. In 1998, Local Body X Education Department purchased a new
printing machine at a cost of ` 40 million. The Department estimated
that the useful life of the machine would be 40 million copies of books
to be printed over 10 years for use by elementary school students. In
2003, it was reported that an automated feature of the machine‟s
function does not operate as expected, resulting in a 25 percent
reduction in the machine‟s annual output level over the remaining 5
years of the useful life of the asset. The replacement cost of a new
printing machine is ` 45 million in 2003.
Evaluation of Impairment
IE16. Impairment is indicated by evidence from internal reporting that the
service performance of the printing machine is worse than expected.
Circumstances suggest that the decline in the service potential of the
asset is significant and of a long-term nature. Impairment loss using a
service units approach is determined as follows:
a Acquisition cost, 1998 40,000,000
Accumulated depreciation (a × 5 ÷ 10 ) 20,000,000
b Carrying amount, 2003 20,000,000
c Replacement cost 45,000,000
Accumulated depreciation (c × 5 ÷ 10) 22,500,000
d Depreciated replacement cost before 22,500,000
adjustment for remaining service units
e Recoverable Service Amount (d × 75%) 16,875,000
Impairment loss (b - e) 3,125,000
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Appendix 1
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 21
and the corresponding International Public Sector Accounting Standard
(IPSAS) 21, „Impairment of Non-Cash-Generating Assets‟.
Comparison with IPSAS 21, „Impairment of Non-Cash-
Generating Assets‟
1. Different terminologies have been used in ASLB 21 as compared to
corresponding IPSAS 21, e.g., the terms „statement of income and
expenditure‟ and „entities‟ have been used in place of „statement of
financial performance‟ and „public sector entities‟.
2. The following paragraphs of IPSAS 21 have been deleted. In order to
maintain consistency with the corresponding IPSAS 21, the paragraph
numbers have been retained:
(i) The concept of intangible assets with indefinite useful life has
not been retained in ASLBs. Accordingly, paragraph 26A has
been modified and paragraph 39A has been deleted.
(ii) Paragraphs 80-81 pertaining to transitional provision have been
deleted as a separate ASLB 33, „First-time Adoption of IPSASs‟
has been issued that contains all transitional provisions at one
place.
(iii) Paragraphs 82-83 pertaining to effective date have been deleted
as ASLB 21 would become mandatory for Local Bodies in a
State from the date specified by the State Government
concerned.
3. Paragraph 3 of IPSAS 21 that pertained to applicability of IPSASs has
been deleted by the IPSASB from this Standard because a separate
document of IPSASB on „Applicability of IPSASs‟ now deals with the
same. However, the provision pertaining to applicability of ASLBs has
been covered in the Standard itself in line with other issued ASLBs.
4. The following paragraphs of IPSAS 21 have been amended to make
the same more relevant in the context of Local Bodies in India:
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Paragraph 14: Definitions
(i) The terms „impairment of non-cash-generating asset‟ and
„impairment loss of non-cash-generating asset‟ have been
defined additionally to distinguish it from impairment/
impairment loss of cash-generating asset more clearly.
(ii) A footnote has been appended to the definition of „cost of
disposal‟ for more clarification.
5. The following paragraphs appear as „Deleted‟ in IPSAS 21. In
order to maintain consistency with paragraph numbers of IPSAS
21, the paragraph numbers have been retained in ASLB 21:
(i) Paragraph 2 (e) & (f),
(ii) Paragraph 4,
(iii) Paragraph 7,
(iv) Paragraph 11,
(v) Paragraph 15,
(vi) Paragraph 73A,
(vii) Paragraph 80, and
(viii) Paragraph 81.
6. Some examples of IPSAS 21 have been deleted or modified in
light of Indian conditions, and some examples have been
included in ASLB 21. (refer paragraphs 18, 20, 23 & 56)
7. Consequential changes resulting from the above departures have
been made in ASLB 21.
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Impairment of Non-Cash-Generating Assets
Appendix 2
Note: This Appendix is not a part of the Accounting Standard for Local
Bodies. The purpose of this Appendix is only to bring out the major
differences, if any, between Accounting Standard for Local Bodies (ASLB) 21
and the existing Accounting Standard (AS) 28, „Impairment of Assets‟.
Comparison with Existing AS 28, „Impairment of Assets‟
1. For impairment purposes, ASLB Framework has concept of
segregating assets into „cash-generating assets‟ and „non-cash-
generating assets‟ and accordingly, two different ASLBs deal with this
topic. However, Existing AS Framework has no such segregation and
has only one AS dealing with this topic.
2. The method of measurement of value in use of a non-cash-generating
asset under ASLB 21 is different from that applied to a cash-
generating asset under existing AS 28. ASLB 21 measures the value
in use of a non-cash-generating asset as the present value of the
asset‟s remaining service potential using a number of approaches.
Existing AS 28 measures the value in use of a cash-generating asset
as the present value of future cash flows from the asset.
3. ASLB 21 does not include a change in the market value of the asset
as an indication of impairment whereas existing AS 28 provides a
significant, unexpected decline in market value as part of the minimum
set of indications of impairment. ASLB 21 refers to it in commentary.
4. ASLB 21 includes a decision to halt the construction of an asset before
completion as an indication of impairment and the resumption of the
construction of the asset as an indication of reversal of the impairment
loss whereas existing AS 28 does not include such an indicator.
5. ASLB 21 deals with the impairment of individual assets. However,
impairment prescriptions under existing AS 28 are based on concept
of „cash-generating unit‟ which would include more than one individual
asset.
6. Existing AS 28 has concept of Corporate Assets, i.e., the assets other
than goodwill that contribute to the future cash flows of both the cash -
generating units under review and other cash generating units. ASLB
21 has no such concept.
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7. ASLB 21 uses different terminology in certain instances. For example,
ASLB 21 uses the term “recoverable service amount” whereas existing
AS 28 uses the terms “recoverable amount”.
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