(i) Indications that an Asset or Group of Assets May Have Been Impaired

External Factors:

• A significant decrease in the market value of an asset beyond what would be expected from the normal passage of time.
• Significant adverse changes in the market or business environment in which the asset is used.
• Adverse changes to the technology, economic, or legal environment impacting the business.
• An increase in market interest rates that could affect the discount rate used in calculating value in use.
• When the carrying amount of the entity’s net assets exceeds its market capitalization.
• An increase in interest rates that adversely affects the recoverable value of assets.
• Unexpected changes in government policies that could negatively impact the business.

Internal Factors:

• Physical damage to, or obsolescence of, the asset.
• Adverse changes to the method of use or intended use of the asset.
• Indicators suggesting that the economic performance of the asset will be worse than initially expected.
• Plans by management to reorganize the entity.
• Actual cash flows from the asset being lower than the estimated cash flows, particularly when the asset’s value is being appraised.

(ii) Testing for Impairment of an Asset that Does Not Generate Independent Cash Flows

When an asset does not generate independent cash flows, meaning its cash inflows are largely dependent on those of other assets, the following steps should be taken:

• The recoverable amount of the individual asset cannot be determined.
• If the recoverable amount of an individual asset cannot be estimated, the company must determine the recoverable amount of the cash-generating unit (CGU) to which the asset belongs.
• In such cases, the recoverable amount can only be determined at the level of the CGU, and impairment is tested for the asset at the CGU level.
• An impairment loss for the CGU will be recognized only if the recoverable amount of the CGU is less than its carrying amount.
• If an impairment loss is recognized, it shall be allocated to reduce the carrying amounts of the assets within the CGU in the following order:
  1. First, reduce the carrying amount of any goodwill allocated to the CGU.
  2. Then, reduce the carrying amounts of the other assets within the CGU, pro-rata, based on the carrying amounts of each asset.

These reductions in carrying amounts should be treated as impairment losses on individual assets and recognized accordingly.

• When allocating an impairment loss, the carrying amount of any asset should not be reduced below the highest of:
  1. Its fair value less costs to sell (if determinable).
  2. Its value in use (if determinable).
  3. Zero.