Losses that show an impairment

Learning objectives

• Explain that losses that provide evidence of a reduction in value are recognised in full (downstream transaction) or to the extent of the investor's share (upstream transaction).L3

Normative references

• IAS 28 §29When a transaction provides evidence of a reduction in the net realisable value of the assets or of an impairment loss on those assets, the losses are recognised in full by the investor for a downstream transaction; for an upstream transaction, the investor recognises its share of those losses.

Original summaries of the paragraphs (reference register), never a quotation of the standard.

3 questions

• When a downstream transaction provides evidence of a reduction in the net realisable value of the assets sold to the associate, or of an impairment of those assets, the investor recognises the related losses in full.L3
• Alba SA holds 40% of Brise SA, an associate. Brise sells Alba a batch of goods (upstream transaction). At the reporting date, the net realisable value of the batch is below its cost: the transaction reveals a reduction in value of those assets, for a loss of 100,000 (case data). What part of this loss does Alba recognise under IAS 28?L3
• Alba SA holds 30% of Brise SA, an associate. Alba sells it a batch of equipment at a loss of 100,000 against its carrying amount in Alba's books. An independent valuation on file establishes that the net realisable value of the equipment is below its carrying amount in Alba's books. Write a short note that concludes on the treatment of the loss in Alba's financial statements, distinguishing facts of the case, rule and professional judgement.L3