Canada: Impairment Of Long-Lived Assets - Key IFRS Reminders

Last Updated: August 29 2012
Article by Tahir Ayub

Under both old Canadian GAAP and IFRS, the basic principle for impairments is the same – recognize a loss if the recoverable amount of an asset or group of assets is less than its carrying amount. Nevertheless, the requirements for determining when and how to test for impairment, and what to disclose, can be significantly different. In this memorandum, we summarize key reminders for achieving IFRS compliance at year end.1

1. Watch for impairment indicators. Testing for impairment is necessary if there is any indication that an asset or group may be impaired. Indicators include:

  • A company's market capitalization below the carrying of its net assets.
  • Adverse changes in operations such as, discontinuing or restructuring operations, disposal plans, etc.
  • Economic performance being or being expected to be worse than forecast.
  • Decisions to curtail expenditures.
  • Changes in market interest rates or market rates of return for investments.

Economic factors that contribute to unsettled macro economic conditions may also be impairment indicators.

Goodwill and indefinite lived intangible assets have to be tested for impairment at least annually. Doing this in an earlier interim period doesn't eliminate the responsibility for assessing whether indications of impairment exist at year end.

2. Test for impairment at the appropriate level. Evaluating an individual asset for impairment is appropriate only if it generates largely independent cash inflows. If not, an asset should be included in one or more of the entity's cash generating units (CGUs) – the smallest grouping of assets that produce independent cash inflows (old Canadian GAAP which looked to net cash flows). Attribution or allocation is necessary even for indefinite lived intangible assets that under old Canadian GAAP always were tested on a stand-alone basis.

3. Use a "bottoms up" approach for allocating assets to CGUs. The startingpoint for identifying CGUs is often theindividual operating unit (e.g. plant, store,outlet, etc). If cash inflows from a unit arenot largely independent, the unit shouldbe combined with other assets or unitsuntil a CGU can be identified Assets usedby more than one CGU such as patents ortrademarks as well as corporate assets (e.g.head office, computer equipment, researchcentres) must be allocated to CGUs on areasonable and consistent basis. Specialrules apply if this is not possible.

For exploration and evaluation assetsrelated to mineral resources, CGUs may begrouped for impairment testing (but thegroup cannot be larger than an operatingsegment).

All identifiable long-lived assets have to be included in CGUs (if not tested separately). Reconciling the attributions and allocations to the long-lived assets on the balance sheet is a good way of ensuring completeness.

4. Use a "top down" approach for goodwill. For goodwill, an entityallocates goodwill to the lowest level atwhich goodwill is monitored for internalmanagement purposes (except that thislevel cannot be larger than an operatingsegment). Often goodwill is monitored ata higher level than the individual CGUs.When this happens, the CGUs to whichthe goodwill relates are combined andimpairment tested on a combined basis.

If the CGUs with goodwill have non-controlling interests, goodwill impairment testing can be complicated if NCI is measured using the proportionate interest method. You will have to gross up the goodwill and allocating any resulting loss.

5. Determine recoverable amount in accordance with valuation principles. The recoverable amount foran asset or CGU is the higher of its fairvalue, less cost to sell (FVLCTS), or its valuein use (VIU). Fair value represents marketparticipants' assessment of the value of theassets, while VIU represents management'sassessment of the value. Recoverableamount is a value concept and not simplyundiscounted cash flows as used under oldCanadian GAAP.

While VIU is based on the present value of expected cash flows, FVLCTS may be based on different measures and valuation techniques. The recoverable amount should be based on currently available information. As a result, in both cases:

  • Forecasted cash flows or results and discount rates or multiples should be adjusted as necessary to reflect current economic conditions, including the impacts of macro economic indicators and currency, price, liquidity and country risks.
  • Greater weight should be given to available external evidence such as independent economic forecasts, industry analysis, and other external experts.
  • Changes in discount rates and multiples will have an immediate impact on value. To the extent that risks and uncertainties are not reflected in estimated cash flows or results (e.g., through probability weighting), they will need to be reflected by adjusting the discount rate or multiples.

Exercise caution in relying on recently observable transactions as bench marks for discounted cash flow valuations. Significant volatility may indicate that observations should be made over a longer period.

6. If the carrying amount of a CGU exceeds its recoverable amount, allocate the loss to the underlying individual assets. The impairmentloss is first applied to reduce any goodwillincluded in the CGU and then to other long-livedassets pro rata on the basis of theircarrying amounts. However, an individualasset cannot be reduced below its FVLCTSor VIU, if determinable, or zero.

There are special rules for determining the fair value of individual assets. The ability to assign a fair value to an asset acquired in a business combination does not necessarily mean that the fair value is determinable for impairment testing. If there is no reliable estimate of the amount obtainable from a sale of the asset or it is not able to generate independent cash flows, FVLCTS or VIU may not be determinable.

7. Disclose, disclose, disclose. IFRS requires significant additional disclosures about impairments recognized, and goodwill and indefinite lived intangibles, compared to old Canadian GAAP. These include disclosures about the basis of the recoverable amount used for impairment testing, key assumptions used in determining those estimates, the carrying amounts of goodwill and indefinite lived intangibles by CGUs and sensitivities to possible future impairments.


1 Long-lived assets include property, plant and equipment, investment properties carried at cost, exploration and evaluation assets and goodwill. Impairment testing for long-lived assets is covered by IAS 36, Impairment of Assets, with additional guidance for mineral resources in IFRS 6, Exploration for and Evaluation of Exploration Assets. Investment properties carried at fair value, biological assets and non-current assets held for sale are measured on a fair value basis and therefore are not subject to impairment testing.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.