Same asset, impaired under one framework and not the other
◈ 10 cardsASPE’s trigger-only, two-step undiscounted impairment test with no reversal, and the IFRS-versus-ASPE PP&E contrast table the midterm keeps returning to.
The same crusher, under ASPE
Cobalt Ridge is a private company. If it reported under ASPE (Section 3063) instead of IFRS, its crusher — carrying amount $500,000, the ore-price collapse as a trigger — would be tested differently, and the answer would be different.
ASPE tests only when a triggering event indicates the carrying amount may not be recoverable; there is no annual look for indicators. When a trigger exists, the test has two steps:
- Recoverability. Compare the carrying amount with the undiscounted future cash flows expected from using the asset and disposing of it. If the undiscounted flows are at least the carrying amount, the asset is recoverable and the test stops — no loss.
- Measurement, only if step 1 fails. The loss is carrying amount less fair value — fair value, with no deduction for disposal costs, and no value-in-use alternative.
Management's projection for the crusher gives undiscounted cash flows of $520,000 — the same flows that, discounted, gave a value in use of 380,000 in L3.3.
Under IFRS this asset was written down by 120,000. Under ASPE, nothing is recorded. Neither framework is wrong; they answer different questions. IFRS asks what is this asset worth today — discounted, best of use or sale. ASPE's first step asks only will the asset earn back its carrying amount in nominal dollars over its life — a much easier bar to clear, because ignoring the time value of money makes distant cash flows count in full.
When step 1 fails
Suppose instead the undiscounted flows were $460,000 and the crusher's fair value $400,000. Step 1: 460,000 < 500,000, not recoverable. Step 2: loss = 500,000 − 400,000 = 100,000. The entry is the same shape as IFRS's — Dr Impairment Loss 100,000 / Cr Accumulated Depreciation—Crusher 100,000 — and depreciation is re-based on 400,000. Note what did not enter the calculation: the undiscounted 460,000 is only a screen; the 30,000 of disposal costs IFRS would have deducted are not deducted; and no value in use is computed.
No reversal, ever
If ore prices recover next year, the ASPE-reporting Cobalt Ridge does nothing. ASPE prohibits the reversal of a PP&E impairment loss; the written-down amount becomes the new cost base for good. IFRS reverses, capped (L3.5). Recall that on LCNRV the frameworks agree — both reverse an inventory write-down up to cost (L2.4). The framework difference on reversals is a PP&E difference, and the midterm tests exactly that distinction.
The contrast table
| IFRS (IAS 16 / IAS 36) | ASPE (Sections 3061 / 3063) | |
|---|---|---|
| Term | depreciation | amortization (depreciation also used) |
| End-of-life value | residual value | salvage value |
| Measurement models | cost or revaluation | cost only |
| When to test | assess for indicators every reporting date | only when a triggering event occurs |
| The test | one step: carrying amount vs recoverable amount (discounted) | two steps: undiscounted flows screen, then fair value |
| Loss measure | carrying amount − recoverable amount (higher of VIU and FVLCD) | carrying amount − fair value |
| Reversal | yes, capped at never-impaired carrying amount | never |
| Held for sale | separate classification, lower of carrying amount and FVLCD, no depreciation | similar treatment, stated in Section 3475 |
Why a private company might still choose IFRS
Cobalt Ridge may elect IFRS. Its lenders may prefer IFRS statements because they are comparable with the public miners the bank also lends to. The price is earlier and larger impairments — a hit to earnings and to equity in the year of the write-down, which matters when a loan covenant is written on a debt-to-equity ratio (Module 9 returns to this). The exam item on this lesson asks you to weigh that trade-off and take a position.