IND AS-36 Impairment of Assets
This standard shall not apply to:
- Contracts that are recognized in accordance with Ind AS 115
- Deferred Tax Assets
- Financial Assets
- Non Current Assets classified for sale in accordance with Ind AS 105
- Biological Assets related to agricultural activity
- Assets arising from the employee benefits.
How to calculate impairment loss?
Impairment loss =Recoverable Value- Carrying Amount
Recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset shall be reduced to its recoverable amount. That reduction is an impairment loss.
If recoverable amount is more than carrying amount of an asset, then no impairment loss will be recognized.
Recoverable amount shall be higher of the following:
- Fair Value less cost of disposal
- Value in use
Fair Value less cost of disposal
Costs of disposal are deducted while determining the fair value less cost of disposal. Examples of such costs are:
- Legal costs
- Stamp duty and similar taxes
- Costs of removing the assets
- Incremental costs for bringing the assets into the conditions for its sale
- Other costs
Value in use
It shall be calculated on the following basis:
- Estimated Future Cash Flow
- Discount Rate
Recognising and measuring an impairment loss
Paragraphs 58–108 set out the requirements for recognizing and measuring impairment losses
Paragraphs 65–108 deal with the recognition and measurement of impairment losses for cash-generating units and goodwill
An impairment loss shall be recognised immediately in Statement of profit or loss. An impairment loss on a non-revalued asset is recognised in profit or loss. However, an impairment loss on a revalued asset is recognised in other comprehensive income to the extent that the impairment loss does not exceed the amount in the revaluation surplus for that same asset. Such an impairment loss on a revalued asset reduces the revaluation surplus for that asset.
Para 62 deals with where the amount estimated for an impairment loss is greater than the carrying amount of the asset to which it relates, an entity shall recognise a liability.
When to test for Impairment?
- It can be conducted on annual basis.
Test for impairment annually when:
Intangible asset has indefinite life or intangible assets are not available for use.
- Whenever impairment indicators occurs. These are external indicators and internal indicators.
- Significant decline in market value
- Change in technology, market, economic or legal environment
- Change in interest rate.
- Low market capitalization
- Assets performance is declining
- Discontinuance or restructuring plan
- Evidence of physical obsolesces
Impairment loss for Cash Generating Units
Allocation of Impairment loss in the following ways:
First, to the carrying amount of any goodwill allocated to for Cash Generating Unit.
Then to other assets, pro rata on the basis of carrying amount of each asset.
IND AS-36 Impairment of Assets
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