Accounting, Reporting & Tax
Impairment Testing for Ships under IAS 36
Summary
An impairment test compares an asset or cash-generating unit (CGU) with its recoverable amount when indicators require assessment.
Why this matters in ship finance
Falling freight rates or second-hand vessel prices can reveal an earnings shortfall not captured by depreciation alone.
The concept
Under IAS 36, recoverable amount is the higher of fair value less costs of disposal and value in use. The CGU boundary must reflect largely independent cash inflows.
How it is used in practice
Build supportable forecasts, charter assumptions, operating costs, discount rate, disposal cash flows and sensitivity analysis for each relevant CGU.
Practical issues
A broker valuation does not always equal recoverable amount; value-in-use assumptions should not double-count financing cash flows.
How ShipFinance.ai uses this concept
Provide an impairment indicator checklist and bridge from projected operating cash flow to recoverable amount.
Key takeaways
- Compare carrying amount with recoverable amount when required.
- Recoverable amount uses the higher of two measures.
- Use supportable cash flows and CGU boundaries.