Impairment - Assessing the financial impact and required disclosures

*Source SNG Grant Thornton

Please note that every effort has been made to ensure that the advice given in this educational material is correct. Nevertheless, that advice is given purely as guidance readers to assist them with particular problems relating to the subject matter of the educational material, and African Venture Group will have no responsibility to any person for any claim of any nature whatsoever that may arise out of, or relate to, the contents of this educational material.


An entity is required to test its assets for impairment when indicators of impairment are present. An impairment test must be performed in response to indicators of impairment in addition to a mandatory impairment test for goodwill and intangible assets with indefinite useful lives at least annually.

Although some indicators of impairment are based on internal information (eg damage to property, plant and equipment, plans to remove the asset from use), others are triggered by events and circumstances external to the entity. Below are some examples of indicators of impairment that may exist as a result of the economic conditions caused by the spread of COVID-19:

• Investments other than portfolio investments (eg subsidiary that is not consolidated)

significant financial difficulty of the investee

– a breach of contract (eg default or delinquency in debt payments)

– it is probable that the investee will enter bankruptcy or other financial reorganisation

– a significant adverse change in the economic or legal environment in which the investee operates (eg recession)

– the disappearance of an active market for the investment because of financial difficulties of the investee.

Property, plant and equipment and intangible assets (other than goodwill)

– significant changes in the extent or manner in which the asset is used or is expected to be used (eg idling of a machine such that its future productive capacity may be affected, a machine being used in a manner different from its intended purpose

– such as to produce items to support the battle against COVID-19

– which may reduce its future productive capacity)

– significant changes in the legal factors or business climate that could affect the value of the asset (eg an entity expects a decrease in its exports to a particular foreign market as a result of lengthy border closings)

– a decrease in market interest rates which would cause a decrease in the asset’s value in use

– a decline in, or cessation of, the need for the services provided by the asset.

In addition, doubt about the entity’s ability to continue as a going concern is a general indicator of impairment for all assets.

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