IAS 36 Impairment of assets

Name: Mian Muhammad Talha Mehmood

Contact #: 03325000660
 Assets should be carried at
the lower of

Carrying
Recoverable amount
amount

Cost – Revalued amount

Greater of
Accumulated – Accumulated
Depreciation – Depreciation –
Impairment loss Impairment loss NRV VIU
if any if any

IAS 36 also explains how

company should
to determine fair value
estimate the future cas
less costs to sell. The best
inflows and outflows
guide is the price in a
from the asset and from
binding sale agreement, in
its eventual sale, and
an arm's length
then discount the futur
transaction adjusted for
cashflows accordingly
costs of disposal.
 IAS 38 Definition
The aim of IAS 36, Impairment of Assets, is to ensure that assets are carried at no
more than their recoverable amount.

An impairment loss is the amount by which the carrying amount of an asset or cash-
generating unit (CGU) exceeds its recoverable amount. The recoverable amount of
an asset or a CGU is the higher of its fair value less costs to sell and its value in use
 IAS 38 Key Point
A company must assess at each balance sheet date whether an asset is impaired.
Even if there is no indication of any impairment, certain assets should be tested for
impairment, for example, an intangible asset that has an indefinite useful life

Additionally, the standard specifies the situations that might indicate that an asset is
impaired. These are external events, such as a decline in market value, or internal
causes, such as physical damage to an asset.
 IAS 38 Key Point
 IAS 36 also explains how a company should determine fair value less costs to sell. The best guide is
the price in a binding sale agreement, in an arm's length transaction adjusted for costs of disposal.
 When calculating the value in use, typically a company should estimate the future cash inflows and
outflows from the asset and from its eventual sale, and then discount the future cashflows
accordingly.
 It is important that any cashflow projections are based upon reasonable and supportable
assumptions over a maximum period of five years unless it can be proven that longer estimates are
reliable. They should be based upon the most recent financial budgets and forecasts. The cashflows
should not include any that may arise from future restructuring or from improving or enhancing the
asset's performance
 The discount rate to be used in measuring value in use should be a pre-tax rate that reflects current
market assessments of the time value of money, and the risks that relate to the asset for which the
future cashflows have not yet been adjusted.
 Where the recoverable amount of an asset is less than its carrying amount, the carrying amount will
be reduced to its recoverable amount. This reduction is the impairment loss, which should be
recognised immediately in profit or loss, unless the asset is carried at a re-valued amount. In this
case, the impairment loss is treated as a revaluation decrease in accordance with the respective
standard.