The core principle in IAS 36 Impairment of Assets is that an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount exceeds the recoverable amount, the asset is described as impaired. The entity must reduce the carrying amount of the asset to its recoverable amount, and recognize an impairment loss. IAS 36 Impairment of Assets also applies to groups of assets that do not generate cash flows individually (known as cash-generating units).
IAS 36 Impairment of Assets applies to all assets except those for which other Standards address impairment. The exceptions include inventories, deferred tax assets, assets arising from employee benefits, financial assets within the scope of IFRS 9 Financial Instruments, investment property measured at fair value, biological assets within the scope of IAS 41 Agriculture, some assets arising from insurance contracts, and non-current assets held for sale.
The recoverable amount of the following assets in the scope of IAS 36 Impairment of Assets must be assessed each year: intangible assets with indefinite useful lives; intangible assets not yet available for use; and goodwill acquired in a business combination. The recoverable amount of other assets is assessed only when there is an indication that the asset may be impaired. Recoverable amount is the higher of (a) fair value less costs to sell and (b) value in use.
Fair value less costs to sell is the arm’s length sale price between knowledgeable willing parties less costs of disposal.
The value in use of an asset is the expected future cash flows that the asset in its current condition will produce, discounted to present value using an appropriate discount rate. Sometimes, the value in use of an individual asset cannot be determined. In that case, recoverable amount is determined for the smallest group of assets that generates independent cash flows (cash-generating unit). Whether goodwill is impaired is assessed by considering the recoverable amount of the cash-generating unit(s) to which it is allocated.
An impairment loss is recognised immediately in profit or loss (or in comprehensive income if it is a revaluation decrease under IAS 16 Property, Plant & Equipment or IAS 38 Intangible Assets). The carrying amount of the asset (or cash-generating unit) is reduced. In a cash-generating unit, goodwill is reduced first; then other assets are reduced pro rata. The depreciation (amortization) charge is adjusted in future periods to allocate the asset’s revised carrying amount over its remaining useful life.
An impairment loss for goodwill is never reversed. For other assets, when the circumstances that caused the impairment loss are favorably resolved, the impairment loss is reversed immediately in profit or loss (or in comprehensive income if the asset is revalued under IAS 16 Property, Plant & Equipment or IAS 38 Intangible Assets). On reversal, the asset’s carrying amount is increased, but not above the amount that it would have been without the prior impairment loss. Depreciation (amortization) is adjusted in future periods.
|International Financial Reporting Standards
|IAS 36 Impairment of Assets
|IAS 16 Property, Plant & Equipment
|IAS 38 Intangible Assets
|IAS 41 Agriculture
|IFRS 6 Mineral Resources Exploration & Evaluation
|IFRS 9 Financial Instruments
|Property, Plant & Equipment
|Statement of Financial Position