Need help with the impairment of assets

[Account_New]

Good morning,

I am very new in the accounting area and because of my lack of experience, I wanted to ask for help regarding the impairment of assets...

So far, I have understood that we recognize an inmpairment when the recoverable amount is lower than the carrying amount (original cost).
According to IAS36 there is also a test for it, but it does not include the asset account "inventory". Inventory would be described in IAS2 but I still have not figured out how to impair it.

We are supposed to do journal entries:
The annual report (Volkswagen 2016) states "Impairment losses on inventories amounting to €0.3 billion"
I am not sure what to debit now because it is not a physical damage or obsolence...

Probably:
Dr. Cost of Goods Sold 300
Cr. Inventory 300

But if we are debiting Cost of Goods Sold, how should we do a revearsal that is possible according to IFRS or am I wrong?

Second part:
"impairment losses on intangible assets and property, plant and equipment amounting to €0.3 billion, which are offset by impairment reversals of noncurrent and current lease assets in the amount of €0.1 billion"

Here I also do not know which account I should debit, (intangible asset - not physical / P,P and E - physical)

Probably:
Dr. Impairment Loss 300
Cr. P,P and E and intangible assets 300

For the second part:
Dr. Lease assets
Cr. Impairment Loss?

Thanks in advance for your help, really means a lot, because although we have not discussed this topic yet, I would like to understand it.

 

[Account_New]

For the first journal entry, I thought that debiting Cost of Goods Sold would be right because it would be a write down then, I guess?

 

[Fidget]

1. For inventories (IAS2) you're going to credit the inventory and debit the P&L with the amount of the write down. The write down is a loss, so the debit is to the P&L. It's not to COGS because you haven't sold the goods. If sold, they will then come through COGS at their written down value.

2. For impairment reversals (IAS36) you're going to reverse the original entries that recorded the impairment loss to the extent of the impairment to be reversed - so you're basically writing back the amount that the asset is no longer impaired by. It's a credit to the P&L and a debit back to the items that were impaired.

 

[Account_New]

1. For inventories (IAS2) you're going to credit the inventory and debit the P&L with the amount of the write down. The write down is a loss, so the debit is to the P&L. It's not to COGS because you haven't sold the goods. If sold, they will then come through COGS at their written down value.

2. For impairment reversals (IAS36) you're going to reverse the original entries that recorded the impairment loss to the extent of the impairment to be reversed - so you're basically writing back the amount that the asset is no longer impaired by. It's a credit to the P&L and a debit back to the items that were impaired.

Thank you so much! I understood the first part with the COGS perfectly now Debit the P&L is the same as Debit Impairment loss? And it will be on our income statement as an expense right? Thank you!

 

[Fidget]

Yes, that's right.

 

[Account_New]

Yes, that's right.

Thank you! This is the last one here that is driving me crazy "impairment losses on intangible assets and property, plant and equipment amounting to €0.3 billion "
Should we Cr. Intangible assets and PP&E 300

I am not sure because these are different accounts?

 

[Fidget]

Yes, they are different accounts, so you need to know the amounts relating to each to be able to apply it to the respective accounts.