Store-level impairment (CGU per store)

Multi-store retailers must assess whether individual stores show indicators of impairment, and each store - including its right-of-use (ROU) lease asset, leasehold improvements/fit-out, and fixtures and equipment - is typically the lowest level of assets generating cash inflows largely independent of other stores, making it its own cash-generating unit (CGU) under IAS 36. This matters because declining footfall, mall closures, e-commerce cannibalisation, or lease renewal at unfavourable terms can silently erode a store's recoverable amount well before the store becomes cash-flow negative on a simple P&L view. Because ROU assets brought onto the balance sheet under IFRS 16 significantly increase the carrying amount subject to impairment testing, store-level impairment has become materially more consequential than before lease capitalisation. Failing to test and recognise store-level impairment overstates assets and delays recognition of losses that users of the financial statements need to see promptly, particularly for stores being considered for closure or renegotiation.

Has the store shown sustained negative cash flows, declining footfall, or budget-to-actual underperformance that indicates an impairment trigger? Is the CGU correctly defined as the individual store, or does it share significant cash inflows with other stores (e.g., an online fulfillment hub) that would require a broader CGU? Is the right-of-use asset for the store lease included in the CGU's carrying amount being tested?

1. At each reporting date, assess whether there are internal or external indicators of impairment at the store level (e.g., declining footfall or sales, mall/area decline, adverse changes in the retail market, budget-to-actual underperformance, plans to close or downsize a store, unfavourable lease renewal terms).
2. If indicators exist, identify the CGU - normally the individual store, comprising its ROU asset, leasehold improvements/fit-out, and fixtures and equipment, plus any allocated goodwill if the store was part of an acquired business.
3. Estimate the store CGU's recoverable amount as the higher of fair value less costs of disposal (FVLCD) and value in use (VIU); VIU is typically used in practice for operating stores given the difficulty of obtaining a reliable FVLCD for an operating unit.
4. Compare the recoverable amount to the CGU's total carrying amount (including the ROU asset); if carrying amount exceeds recoverable amount, recognise an impairment loss for the difference.
5. Allocate the impairment loss first to any goodwill allocated to the CGU, then pro-rata to the other assets in the CGU based on their relative carrying amounts, ensuring no individual asset is reduced below the highest of its own FVLCD (if determinable), its value in use (if determinable), or zero.
6. Reassess at each subsequent reporting date whether indicators suggest the impairment loss (other than goodwill impairment, which is never reversed) should be reversed, capped at the carrying amount that would have existed (net of depreciation) had no impairment been recognised.

Value in use is measured as the present value of the future cash flows expected to be derived from the store CGU, using pre-tax cash flow projections based on reasonable and supportable assumptions (typically management-approved budgets/forecasts for up to five years, with an appropriate terminal growth rate thereafter), discounted at a pre-tax rate reflecting current market assessments of the time value of money and risks specific to the store/CGU. The CGU's carrying amount for comparison must include all assets directly attributable and allocable to it, including the ROU asset (not just owned fixed assets), fit-out, and fixtures. After an impairment loss, the ROU asset and other depreciable assets continue to be depreciated over their remaining useful lives (or lease term for the ROU asset) based on the new, lower carrying amount. A reversal of impairment increases the carrying amount to the revised recoverable amount, but capped so it does not exceed the carrying amount (net of depreciation) that would have resulted had no impairment loss been recognised in prior years.

For each material impairment loss (or reversal): the events and circumstances that led to recognition (e.g., store underperformance, mall decline, closure decision); the amount of the loss/reversal and the line item(s) in profit or loss in which it is included; whether recoverable amount is FVLCD or VIU; if VIU, the discount rate(s) used and key assumptions (e.g., sales growth, terminal growth rate, gross margin assumptions) to which the recoverable amount is most sensitive; description of the CGU (e.g., 'individual retail store') and how it is identified as a CGU; aggregate impairment losses and reversals recognised in the period by class of asset and reportable segment if applicable; carrying amount of ROU assets and fixtures/equipment after impairment, split out if material

• Testing impairment at the wrong level (e.g., across a whole region or brand rather than the individual store CGU), which can hide a genuinely impaired store within an overall profitable portfolio
• excluding the ROU asset from the CGU'
• s carrying amount because it '
• isn'
• t owned,'
• materially understating the carrying amount subject to the test
• using post-tax discount rates or post-tax cash flows inconsistently with a pre-tax discount rate
• allocating the impairment loss evenly across CGU assets instead of pro-rata to carrying amounts, or allocating below an asset'
• s recoverable floor
• failing to consider the lease renewal/termination assumptions embedded in the ROU asset'
• s remaining term when they materially affect future cash flows used in VIU
• and not reassessing for reversal indicators in later periods once conditions improve (impairment reversals, other than goodwill, are mandatory when indicators are met, not optional).