IMPAIRMENT TESTING

Recognising assets at their correct value is, among other things, related to the due care of an entity’s management and auditors.

An asset is impaired when its carrying amount exceeds the value of the future economic benefits it is able to generate. In this case, the asset must be written down to its recoverable amount.

The following indications, individually or in combination, may refer to impairment of assets (Estonian Financial Reporting Standard, ASBG 5):

• The carrying amount of the net assets of an entity is more than the estimated fair value of the entity as a whole;
• The general economic environment and market situation have deteriorated; accordingly, it is likely that the economic benefits generated by an asset will decrease;
• The entity plans to discontinue some areas of operation or close some departments or sell assets earlier than planned;
• Economic benefits generated by an asset or a group of assets are lower than expected;
• The physical condition of an asset has sharply deteriorated;
• An asset’s market value has declined significantly more than would be expected;
• Market interest rates have increased, which is why the discount rate used in calculating an asset’s value in use has increased and the asset’s value in use has decreased.

Based on an impairment test, the amount of an impairment loss, if any, must be determined and documented.

If you are a board member, a CFO, an accountant or an auditor and have noticed some or any of the circumstances listed above, please contact BDO Estonia’s financial services advisers to receive an assessment of whether an asset is impaired.