Example: Impairment Test 

This example uses the following initial data:

The asset is sold at the beginning of the year.

Consolidation Unit A (Seller)		Consolidation Unit B (Buyer)
Original value (acquisition cost)	1000	Original value	900
Beginning book value	500	Beginning book value	900
Ordinary depreciation: straight-line over 10 years	0	Ordinary depreciation: straight-line over 5 years	180
Ending book value	0	Ending book value	720

The current value equals 250 currency units.

Extraordinary depreciation (labeled “Ex.D” in the figure below) is calculated as follows:

Extraordinary depreciation = ending book value_buyer – current value = 720 – 250 = 470

Total depreciation is calculated as follows:

Total depreciation = ordinary depreciation + extraordinary depreciation = 180 + 470 = 650

The depreciation adjustment solely based on the impairment test is calculated as follows:

Depreciation adjustment = 650 – (100 + 150) = 400

The amount of 150 is arrived at because the valuation of the group may not exceed the valuation of the buyer. Therefore, this part of the extraordinary depreciation must equal 150 to retain the group value of 250.