IAS 36 SummarY

IAS 36 — Impairment of Assets (Summary)
Objective
To ensure that assets are carried at no more than their recoverable amount, and to define how recoverable
amount is determined.
Definitions
Impairment loss: the amount by which the carrying amount of an asset exceeds its recoverable
amount.
Carrying amount: the amount at which an asset is recognised 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 and its value in use
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.
Value in use: the present value of the future cash flows expected to be derived from an asset.
Identifying an asset that may be impaired

At the end of each reporting period, an entity is required to assess whether there is any indication that an
asset may be impaired (i.e. its carrying amount may be higher than its recoverable amount).
Recognition of an impairment loss

 An impairment loss is recognised whenever recoverable amount is below carrying amount.
 The impairment loss is recognised as an expense (unless it relates to a revalued asset where the
impairment loss is treated as a revaluation decrease).
 Adjust depreciation for future periods.
Indications of impairment
External sources:
 market value declines
 negative changes in technology, markets, economy, or laws
 increases in market interest rates
 net assets of the company higher than market capitalisation
Internal sources:
 obsolescence or physical damage
 asset is idle, part of a restructuring or held for disposal
 worse economic performance than expected
.
 for investments in subsidiaries, joint ventures or associates, the carrying amount is higher than the
carrying amount of the investee's assets, or a dividend exceeds the total comprehensive income of
the investee
Value in use
Estimates of future cash flows must include:
 cash inflows from the continuing use of the asset;

 cash outflows that will be necessarily incurred to generate the cash inflows from continuing use
of the asset; and
 net disposal proceeds at the end of the asset’s useful life.
(The future cash flows from continuing use are estimated for the asset in its current condition.)
Estimates of future cash flows must not include:
 Depreciation of asset
 cash inflows or outflows from financing activities; or
 income tax receipts or payments.
 Any estimate of future cash flows should not include estimated future cash flows
 that are expected to arise from:
 a future restructuring to which an entity is not yet committed; or
 improving or enhancing the asset’s performance.
Discount rate
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 asset.
Determining recoverable amount

 If fair value less costs of disposal or value in use is more than carrying amount, it is not necessary
to calculate the other amount. The asset is not impaired.
 If fair value less costs of disposal cannot be determined, then recoverable amount is value in use.
 For assets to be disposed of, recoverable amount is fair value less costs of disposal.
Reversal of an impairment loss

A company must make an assessment at the end of each reporting period as to whether a previously
recognized impairment should be decreased or may no longer exist. If the loss no longer exists, it is
reversed subject to the following guidance.
In allocating a reversal of an impairment loss, the carrying amount of an asset must not be
increased above the lower of:
 its recoverable amount (if determinable); and
 the carrying amount that would have been determined (net of amortisation or depreciation)had no
impairment loss been recognised for the asset in prior periods
A reversal should be:
.
 recognised immediately in profit or loss; unless
 the original impairment was charged to the revaluation surplus, in which case the reversal should
be credited to the revaluation surplus (and reported in the same way as a revaluation in ‘other
comprehensive income’ for the period).
 If the original impairment loss was charged to Revaluation Surplus and Profit or Loss Account,
the impairment loss charged to profit or loss shall be reversed first and remaining amount shall go
towards revaluation surplus.
 Depreciation charges for future periods should be adjusted to allocate the asset’s revised carrying
amount, minus any residual value, over its remaining useful life.
Disclosure
 impairment losses recognised in profit or loss
 impairment losses reversed in profit or loss
 which line item(s) of the statement of comprehensive income
 impairment losses on revalued assets recognised in other comprehensive income
 impairment losses on revalued assets reversed in other comprehensive income

IAS 36 SummarY

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IAS 36 SummarY

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IAS 36 — Impairment of Assets (Summary)

Identifying an asset that may be impaired

Recognition of an impairment loss

 cash inflows from the continuing use of the asset;

Determining recoverable amount

Reversal of an impairment loss

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