IAS 36

Impairment of Assets
Impairment of Assets
• Impairment occurs if, Recoverable Amount < Carrying Amount
• Impairment should be occurred annually if:
i) Intangible assets have indefinite useful life
ii) Intangible assets not yet available for use
iii) Goodwill arising from business combination

• No impairment on non monetary asset such as inventories, cash,

receivables, payables as they will be realized (obtained) in full
Impairment loss
• As impairment occurs when Recoverable amount < Carrying amount
• The Recoverable amount is the higher of:
i) Fair value less (-) costs to sell
- Costs to sell are incremental (extra) costs arising from disposal of assets

ii) Value in use

- It is calculated by estimating future cash inflows and outflows from use
of asset and disposal, then winding them to present values from applying
discount rate
Value in use
• Cash flow should be based upon most recent financial budget forecasts
• Cash flow should be based upon assets current condition meaning should
exclude expenditure to improve/enhance
• Period of projection should be maximum of 5 years, more than that must
be justified
• Growth rate should not exceed average growth rate
• Discount rate should reflect time value of money and risks specific to asset
• If FV less (-) costs to sell is higher than carrying amount, then there is no
impairment, so no need to calculate value in use
Recognition
• An impairment loss is charged in statement of profit or loss and other
comprehensive income
• If there is revaluation surplus (revalued upward) and now impairment
loss, then the impairment is debited by amount of revaluation surplus
and if still remaining, then it will be debited in profit or loss

• Goods that are deemed worthless have no impairment, as their full

values are written down to profit and loss
Cash Generating Units (CGU)
• For impairment to be find out, we need to know its assets that are
independent of others in generating its own revenue. But there are
assets that are not independent in which its impairment include
impairment of others too.
• For to find out its own impairment, we allocate the impairments from
that 2 or more assets, into its own one impairment
• CGU are smallest group of assets that generates independent cash
flows
Cash Generating Unit (CGU)
If there is impairment loss, then it should be allocated in the following
order
• Goodwill
• Other assets in proportion to their carrying amount

The carrying amount of an asset can below the highest of:

• Fair value less (-) costs to sell
• Value in use
• Nil
Reversal of Impairment Loss
• Impaired assets should be reviewed at each reporting date to see
whether there are indications that impairment has reversed
• If original impairment loss was charged in profit or loss then, reversal
of impairment loss is recognized as an income in profit or loss
• If original impairment loss was charged against revaluation surplus,
then the reversal will be credited to the revaluation surplus
• The reversal must not take the value of asset ABOVE (extra) amount
of that asset if the original impairment have never took place
• Reversal of impairment loss cannot be done on GOODWILL
Disclosures
IAS 36 requires disclosures of the following:
• Impairment losses recognized during the period
• Impairment reversals recognized during the period

For each material loss or reversal:

• Amount of loss or reversal and events causing it
• Recoverable amount of asset (or CGU)
• The level of FV hierarchy used in determining FV less (-) costs to sell
• Discount rate used
Journal Entries
Debit Credit
Impairment Dr Profit or loss Cr PPE
Impairment but previously there is Dr Other comprehensive income Cr PPE
Revaluation Surplus Dr Profit or loss (if any remains)