Impairment of Revalued Assets

The objective is to bring property, plant and equipment and intangible assets carried at revalued amounts with the scope of IPSAS 21, Impairment of Non-Cash-Generating Assets, and IPSAS 261, Impairment of Cash-Generating Assets and to clarify that impairments to individual assets within a class of property, plant, and equipment in IPSAS 17, Property, Plant, and Equipment, do not necessitate a revaluation of the entire class to which that impaired asset belongs. 

Summary

Currently property, plant and equipment and intangible assets carried at revalued amounts under the allowed alternative treatment (“revaluation model”) in IPSAS 17 and IPSAS 31, Intangible Assets, are outside the scope of IPSAS 21 and IPSAS 26. When IPSAS 21 was approved the IPSASB took the view that under the allowed alternative treatment in IPSAS 17 and IPSAS 31, assets will be revalued with sufficient regularity to ensure that they are carried at an amount that is not materially different from their fair value as at the reporting date, and that any impairment will be taken into account in that valuation. Therefore, any difference between an asset’s carrying amount and its fair value less costs to sell will be the disposal costs. The IPSASB took the view that, in most cases, disposal costs will not be material and, from a practical viewpoint, it is not necessary to measure an asset’s recoverable service amount and to recognize an impairment loss for the disposal costs of a non-cash-generating asset.

The IPSASB acknowledged that IAS 36, Impairment of Assets, does not excluder property, plant and equipment and intangible assets carried at revalued amounts from its scope. The IPSASB explained the differences between IPSAS 21 and IAS 36 by reference to (a) the different methods of determining recoverable service amount under IPSAS 21 and of determining recoverable amount under IAS 36 and (b) because the requirement in IAS 36 to combine non-cash-generating assets with cash-generating assets to form a cash generating unit was not replicated in IPSAS 21. When it was approved IPSAS 26 followed the scope exclusions in IPSAS 21

IPSAS 17 requires that if an items of property, plant and equipment is revalued, the entire class of property, plant and equipment to which that asset belongs shall be revalued. The IPSASB received feedback that it is ambiguous whether impairments are revaluations and therefore whether the recognition of impairment losses to individual assets necessitate revaluation of the entire class to which the impaired asset belongs. The IPSASB also noted that currently users of financial statements are not provided with the quantitative and qualitative information provided by disclosures required by IPSAS 21 and IPSAS 26. The IPSASB therefore decided to consider amending IPSAS 21 and IPSAS 26 to bring property, plant and equipment and intangible assets carried at revalued amounts within the scope.