“No man is an island, entire of itself; every man is
a piece of the continent, a part of the main.”
John
Donne
Hello!
It’s another edition of IFRS is easy.
Every item created by man has an expiry date. This doesn’t imply that
the item will stop being useful suddenly at the foretold date. The devolvement
in its value is a gradual process.
At a point in time, it will not be
impossible for an entity to discover that the amount that can be recovered from
the continual use of the asset or even its immediate disposal, is less than the
purported figure that appears on the financial position. At this point, it will
be imprudent for the business to continue to carry such misrepresentation on
its financial position. As a result, the concept of IAS 36 –Impairment of
assets, cannot be overemphasized.
Robert Schuller shared this funny story in one of his books:
The elevator
at the El Cortez in San Diego couldn't handle the traffic. The experts –engineers
and architects, were called in. They concluded that they could put another
elevator in by cutting a hole in each floor and installing the motor for the
new elevator in the basement.
The plans were drawn up. Everything was in order.
The architect and the engineer came into the lobby discussing it. The janitor
who was there with his mop, heard them say they were going to drop holes in the
floors.
The janitor said, "That’s gonna make a mess."
"Of
course", the engineer said, “but we'll get help for u, don't worry".
The janitor
replied, "You’ll have to close the hotel for a while."
"Well,
if we have to close the hotel for a while, we'll close the hotel. We can't
possibly survive without another elevator."
The janitor
held the mop in his hands and said, "do you know what I would do if I were
you?"
The architect
arrogantly asked, "What?"
"I'd build
the elevator on the outside."
The architect
and the engineer just looked at each other.
They built
the elevator on the outside –the first time in the history of architecture that
an elevator was built on the outside of a building.
Yeah, I would argue that the experts had an
impairment in their imagination…that’s on a lighter mood though.
IAS 36 proffers an awesome dissection to the issue of an
impaired asset and its treatment in the financial statements. For a complete
dosage, detailed examples and better clarification on the subject matter of IAS
36 – Impairment of Assets, click below to view or download the pdf.
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