IMPAIRMENT OF ASSET
• To ensure that assets are carried at no more than their
recoverable amount, and to define how recoverable
amount is determined.
IFRS 36 applies to :
• Land, building, machinery(IAS 16)
• investment property carried at cost(IAS 40)
• intangible assets(IAS 38)
• investments in subsidiaries, associates, and joint ventures carried at cost
• assets carried at revalued amounts under IAS 16 and IAS 38.
IFRS 36 applies to all assets except:
• inventories ( IAS 2)
• assets arising from construction contracts ( IAS 11)
• deferred tax assets (IAS 12)
• assets arising from employee benefits ( IAS 19)
• financial assets (see IFRS 9)
• investment property carried at fair value (IAS 40)
• agricultural assets carried at fair value ( IAS 41)
• insurance contract assets ( IFRS 4)
• non-current assets held for sale ( IFRS 5)
• Impairment loss: the amount by which the carrying amount of an
asset or cash-generating unit exceeds its recoverable amount.
• Carrying amount: the amount at which an asset is recognized in
the balance sheet after deducting accumulated depreciation and
accumulated impairment losses.
• Recoverable amount: the higher of an asset’s fair value less costs
of disposal* (sometimes called net selling price) and its value in
• Fair value: the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants
at the measurement date
• CGU: This is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets.
• If it is not possible to determine the recoverable amount for the
individual asset, then determine recoverable amount for the assets cash generating unit.
• Value in Use: The present value of the estimated net future cash flows generated by the asset including the estimated disposal value at the end of its expected useful life.
Higher of asset’s/CGU
Fair value less to sell Value in use
• If any of these > CA no impairment
• If F.V cost to sell impossible to set use value in use
VALUE IN USE
Future cash flow * Discount rate = Value in use
• Value in Use: The present value of the estimated net
future cash flows generated by the asset including the
estimated disposal value at the end of its expected useful
• In measuring value in use, the discount rate used should be
the pre-tax rate that reflects current market assessments
of the time value of money and the risks specific to the
RECOGNITION AND MEASUREMENT
The rule for asset at historical cost is: If the recoverable amount of an assets is lower than the CA, the CA should be reduced by the difference which should be charged as an expense in the to the P/L .
Impairment loss should always be charged to the P/L except where the asset was previously revalued upward.
To the extent that there is impairment loss to be charged to revaluation surplus, Any excess should be charged to the P/L.
•Disclose detailed information about the estimates used to measure recoverable amounts of cash generating units containing goodwill or intangible assets with indefinite useful lives.
ALLOCATION OF IMPAIRMENT LOSS
Impairment loss should allocated using this hierarchy