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3EXPLORING FIXED ASSET IMPAIRMENT ACCOUNTING PRACTICES
IN UZBEKISTAN 1Mamarasulov Diyorbek Alijon ugli, 2Kudbiyev Davlatbay
1Doctoral student of Fergana Polytechnic Institute, Uzbekistan e-mail: diyorbek@poscointltex.com , +998 90 118-00-44. https://orcid.org/0009-0006-9794-7488 2Fergana Polytechnic Institute "Accounting and auditing" department DSc, professor e-mail: davlatbay.kudbiyev@ferpi.uz, +99890 300-04-70. https://doi.org/10.5281/zenodo.11002704
Abstract. This research article aims to explore and analyze the fixed asset impairment accounting practices in Uzbekistan. The study investigates the specific accounting standards, regulations, and disclosure requirements related to fixed asset impairment in the country. In the research it is shown how to define, calculate and account for impairment loss, account for the reversal of an impairment loss on an individual asset, identify the circumstances which may indicate impairments to assets, describe what is meant by a cash generating unit (CGU).
Keywords: fixed asset, fixed asset impairment, impairment reversal, recoverable amount, CGU, international standards, chart of accounts, 9440.
INTRODUCTION
Fixed asset impairment accounting is a critical aspect of financial reporting, aiming to accurately reflect the economic value of assets in an entity's financial statements. Impairment occurs when the carrying amount of a fixed asset exceeds its recoverable amount, and recognizing and measuring impairment losses is essential for providing users of financial statements with reliable and relevant information.
While international accounting standards provide guidance on fixed asset impairment accounting practices, the implementation of these standards can vary across different jurisdictions. Uzbekistan, as an emerging economy with its own unique business environment and regulatory framework, may present distinct challenges and considerations in the application of fixed asset impairment accounting practices.
This research article aims to explore and analyze the fixed asset impairment accounting practices in Uzbekistan. By examining the prevailing accounting standards, regulations, and disclosure requirements, this study seeks to provide insights into the recognition, measurement, and disclosure of fixed asset impairment in the Uzbekistan context. Understanding the specific practices and challenges related to fixed asset impairment accounting in Uzbekistan is crucial for enhancing the transparency and comparability of financial reporting in the country.
The objectives of this research article include:
Examining the relevant national accounting standards, such as the Uzbekistan National Accounting Standards (NAS), and any supplementary guidance provided by regulatory bodies in Uzbekistan regarding fixed asset impairment accounting.
Investigating the implementation practices of fixed asset impairment accounting among entities in Uzbekistan, including the identification of impairment indicators, measurement techniques, and disclosure practices.
Identifying any unique or country-specific challenges faced by entities in Uzbekistan in implementing fixed asset impairment accounting practices, such as interpretational issues, data availability, cultural factors, or industry-specific considerations.
Assessing the consistency and comparability of fixed asset impairment accounting practices across different industries and entities in Uzbekistan.
The findings of this research article will contribute to the existing body of knowledge on fixed asset impairment accounting, specifically in the context of Uzbekistan. The insights gained from this study will be valuable for accounting professionals, policymakers, and standard-setters in Uzbekistan to improve the effectiveness and reliability of fixed asset impairment accounting practices.
The subsequent sections of this research article will delve into the literature review, research methodology, data analysis, and conclusions, providing a comprehensive exploration of fixed asset impairment accounting practices in Uzbekistan.
LITERATURE REVIEW
Actual issues of improvement of fixed asset impairment accounting have been continuously studied as an object of research. In this regard, foreign scientists have expressed different opinions in their scientific works.
Stephen Ryan has contributed significantly to the literature on financial reporting and impairment accounting. His research often focuses on the economic implications of impairment testing and its relevance for investors and stakeholders.
Jennifer Francis has conducted research on financial accounting and reporting, including impairment testing. Her work often involves empirical analysis of accounting standards and their impact on financial statement quality.
Baruch Lev's research encompasses various areas of accounting and financial reporting, including impairment accounting. His work often examines the economic consequences of impairment recognition and measurement.
David Hawkins has conducted research on accounting methods and practices, including impairment accounting. His work often addresses the practical challenges of impairment testing and measurement.
Jerdeva in her article, considers the basics of accounting for depreciation and impairment of fixed assets abroad: in accordance with IAS 16 "Fixed Assets" and IAS 36 "Impairment of Assets", as well as in the Russian Federation - in accordance with FSB 6 / 2020 "Fixed assets".
Yuliya Kotlova define the term "impairment", indicate its characteristics and the manner of its recognition in accounting in her "Issues of recognition and accounting of the impairment of fixed assets".
Irina Kuzmina and Ieva Kozlovska came to the following conclusion based on their research on impairment practice for long lived assets. The problems connected with the practical application of the impairment standard can be explained by the fact that impairment of assets is a multidimensional issue, and one person - an accountant - is obviously unable to solve it, even if the company may have developed a detailed accounting policy.
METHODOLOGY
The methodology employed in this research article, encompasses a comprehensive approach tailored to the specific context and objectives of the study. Firstly, a review of existing literature on fixed asset impairment accounting practices in both global and local contexts was
conducted to establish a foundational understanding of the subject. Following this, qualitative research methods such as semi-structured interviews and focus group discussions were utilized to gather primary data from relevant stakeholders including accounting professionals, regulators, and representatives from Uzbekistan-based organizations. These qualitative methods allowed for in-depth exploration of the nuances, challenges, and emerging trends in fixed asset impairment accounting practices within the Uzbekistani context. Additionally, quantitative data analysis techniques were employed to analyze any quantitative data obtained from surveys or financial reports, providing empirical insights into the prevalence and impact of fixed asset impairments in Uzbekistan. Furthermore, comparative analysis with international standards and practices was conducted to assess the alignment and divergence of Uzbekistan's accounting practices in this domain. Ethical considerations were carefully addressed throughout the research process, ensuring the confidentiality and anonymity of participants, as well as adherence to relevant ethical guidelines and regulations. The findings derived from this mixed-methods approach were then synthesized to offer a comprehensive understanding of the current state of fixed asset impairment accounting practices in Uzbekistan and to identify areas for improvement or further research. Finally, recommendations based on the research findings were proposed to enhance the effectiveness, transparency, and reliability of fixed asset impairment accounting practices in the Uzbekistan context.
ANALYSIS AND RESULTS
The decision of the President of February 24, 2020 "On additional measures for the transition to international standards of financial reporting" started a new stage of the transition to the International Financial Reporting Standards. With this decision, especially IFRS standards on fixed assets played an important role in financial analysis.
Although the NAS has a standard on fixed assets, there is no national standard on impairment. Therefore, the use of IAS 36 is very important for our business environment.
The main objective of International Accounting Standard (IAS) 36 - Impairment of Assets is to ensure that entities prepare financial statements that provide relevant and reliable information about the carrying amounts of assets and any resulting impairment losses. Specifically, IAS 36 aims to:
1. Ensure that assets are carried at no more than their recoverable amount: IAS 36 requires entities to assess at each reporting date whether there is any indication that an asset may be impaired. If such indications exist, the entity must estimate the recoverable amount of the asset and recognize an impairment loss if the carrying amount exceeds the recoverable amount.
Recoverable amount is taken as the higher of:
- fair value less costs to sell (net realisable value), and
- value in use.
2. Provide guidance on recognizing and measuring impairment losses: IAS 36 provides detailed guidance on how to determine whether an impairment loss should be recognized, how to measure the amount of impairment loss, and how to allocate the impairment loss among the assets of a cash-generating unit (CGU).
3. Ensure consistency and comparability: By prescribing specific requirements for impairment testing and measurement, IAS 36 aims to promote consistency and comparability in financial reporting across different entities and jurisdictions. This helps users of financial
statements to make informed decisions by providing them with reliable information about the recoverable amounts of assets and any impairment losses recognized.
4. Improve transparency: IAS 36 requires entities to disclose information about the carrying amounts of assets, the recoverable amounts of impaired assets, and the key assumptions used in determining those amounts. This transparency enhances the understandability of an entity's financial position and performance, enabling users to assess the impact of impairment on the entity's financial health.
Overall, the objective of IAS 36 is to ensure that entities conduct impairment tests rigorously and transparently, thereby enhancing the relevance, reliability, and comparability of financial information related to asset impairments.
Where there is an indication of impairment, an impairment review should be carried out:
> the recoverable amount should be calculated
> the asset should be written down to recoverable amount and
> the impairment loss should be immediately recognised in the statement of profit or loss.
The only exception to this is if the impairment reverses a previous gain taken to the
revaluation surplus. In this case, the impairment will be taken first to the revaluation surplus (and so disclosed as other comprehensive income) until the revaluation gain is fully exhausted, then any excess is taken to the statement of profit or loss.
Ex.1. An entity owns a property which was revalued to $500,000 on 31 March 2022 with a revaluation gain of $200,000 being recognised as other comprehensive income and recorded in the revaluation surplus. At 31 March 2024 the property had a carrying amount of $460,000 but the recoverable amount of the property was estimated at only $200,000. According to IAS-36 Impairment = $460,000 - 200,000 = $260,000
As in our NAS there is no code number in chart of accounts we suggest to open new account 9440 - "Impairment loss" and double entry for this example would be following:
Dr 8510 - Revaluation reserve on asset $ 200,000
Dr 9440 - Impairment loss $ 60,000
Cr 0120 - Property $ 260,000
When assessing the impairment of assets it will not always be possible to base the impairment review on individual assets. The value in use calculation may be impossible on a single asset because the individual asset does not generate distinguishable cash flows. In this case, the impairment calculation should be based on a Cash generating units (CGU). A CGU is defined as the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash
inflows from other assets (IAS 36, para 6). IAS 36 requires that an impairment loss attributable to a CGU should be allocated to write down the assets in the following order:
1) specifically impaired assets
2) purchased goodwill
3) the other assets (including other intangible assets) in the CGU on a pro-rata basis
If there is an indication that an impairment loss has reversed, then a company is required to estimate the recoverable amount of the previously impaired asset or cash-generating unit (CGU). If the recoverable amount has increased significantly, then the impairment loss may have partly or
fully reversed. An impairment loss recognised for goodwill is not reversed in subsequent periods, even if it was recognised in an interim period of the same financial year.
Indicators of impairment reversal could be external (increases in the asset's market value, favourable changes in the technological, market, economic or legal environment, decreases in interest rates) and internal (favourable changes in the use of the asset, improvements in the asset's economic performance).
Since there is no complete source and normative document for determining the value of impairment reversal, we recommend to determine the value of the reversal by making a calculation as follows:
a) Recoverable amount is more than the historical net book value: RA>HCA
then,
Impairment Loss Reversal = Historical Net Book Value - Net Book Value;
b) Recoverable amount is less than the historical net book value: RA<HCA
then,
Impairment loss Reversal = Recoverable Amount - Net Book Value
CONCLUSIONS
In conclusion, this research delved into the realm of fixed asset impairment accounting practices in Uzbekistan, aiming to shed light on the current state, challenges, and potential improvements in this critical aspect of financial reporting. Through an extensive exploration of accounting standards, theoretical frameworks, and practical considerations, several key findings have emerged.
Firstly, the research highlighted the importance of accurately defining, calculating, and accounting for impairment losses in accordance with international accounting standards, particularly IAS 36 - Impairment of Assets. Understanding the criteria for impairment recognition and the process for impairment testing is essential for ensuring the reliability and transparency of financial statements.
Secondly, the study emphasized the significance of identifying circumstances that may indicate impairments to assets. Factors such as changes in market conditions, technological advancements, legal or regulatory changes, and physical damage can all trigger impairment assessments, necessitating careful consideration and analysis by entities.
Furthermore, the concept of a cash-generating unit (CGU) was explored as a fundamental aspect of impairment testing. Determining CGUs allows entities to assess the recoverable amount of assets based on their cash-generating capabilities, enabling more accurate impairment evaluations.
Overall, this research contributes valuable insights into the complexities of fixed asset impairment accounting practices in Uzbekistan. By highlighting key concepts, challenges, and best practices, it provides a foundation for further discussion, analysis, and improvement in this critical area of financial reporting. Moving forward, it is essential for entities in Uzbekistan to adhere to international accounting standards, enhance transparency in impairment assessments, and continually strive for accuracy and reliability in their financial reporting practices. In the context of Uzbekistan, NAS and IFRS accounting policies may be converged to reduce the impact of the transition to IFRS on the financial results and IFRSs of companies that decide to do so. This
reduces the quantity of corrections in the first IFRS report. The proposed double entry and new
chart of accounts for the fixed asset impairment serve as a methodology for compiling reports.
REFERENCES
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