(Summary) Ind AS 36
Impairment of Assets
is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable amount.
It applies to impairment of all assets, except:
Exceptions to the Scope
|Contract assets and assets arising from costs to obtain or fulfil a contract that are recognised in accordance with Ind AS 115|
|Deferred tax assets|
|Assets arising from employee benefits|
|Deferred acquisition costs, and intangible assets, arising from an insurer’s contractual rights under insurance contracts|
|Non – current assets (or disposal groups) classified as held for sale|
- Carrying amount
- Recoverable amount
- Cash generating unit
- Impairment Loss
- Value in use
- Fair Value
- Impairment loss: the amount by which the carrying amount of an asset or cash-generating unit exceeds its recoverable amount
- Carrying amount: Amount at which an asset is recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon.
- Value in use: Present Value of the future cash flows expected to be derived from an asset or CGU.
- Cash-generating unit: 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.
An entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired (i.e. its carrying amount exceeds its recoverable amount).
The most recent detailed calculation of recoverable amount made in a preceding period may be used in the impairment test for that asset in the current period:
- An intangible asset with an indefinite useful life
- An intangible asset not yet available for use
- Goodwill acquired in a business combination
An entity shall assess at the end of each reporting period whether there is any indication that an asset may be impaired. If any such indication exists, the entity shall estimate the recoverable amount of the asset.
- Asset’s value declines
- Negative changes in technology, markets, economy, or laws
- Increases in market interest rates
- Net assets of the company higher than market capitalisation
- Obsolescence or physical damage.
- Asset is idle, part of a restructuring or held for disposal.
- Worse economic performance than expected
Dividend from subsidiary, JV or associate.
- The carrying amount (of investment) is higher than the carrying amount of the investee’s assets, OR
- A dividend exceeds the total comprehensive income of the investee.
- FV (-) cost of disposal OR VIU is more than CA, then the asset is not impaired.
- FV (-) cost of disposal cannot be determined, Recoverable amount = VIU
- For assets to be disposed of, recoverable amount is FV (-) costs of disposal.
Fair value less costs of disposal
- Costs of disposal, other than those that have been recognised as liabilities, are deducted in measuring fair value less costs of disposal.
- Examples of such costs are legal costs, stamp duty and similar transaction taxes, costs of removing the asset, and direct incremental costs to bring an asset into condition for its sale.
Value in use
The following elements shall be reflected in the calculation of an asset’s value in use:
- Estimate of the future cash flows the entity expects to derive from the asset;
- Expectations about possible variations in the amount or timing of those future cash flows;
- The time value of money, represented by the current market risk-free rate of interest;
- The price for bearing the uncertainty inherent in the asset; and
- Other factors, such as illiquidity, that market participants would reflect in pricing the future cash flows the entity expects to derive from the asset.
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.
- If there is indication that asset may be impaired – Recoverable Amount estimated for the individual asset.
- If not possible to estimate Recoverable Amount – determine Recov. Amt of asset’s CGU.
CGU to which goodwill has been allocated should be tested for impairment annually
Recoverable Amt. > CA → unit & G/w allocated regarded as not impaired
CA > Recoverable Amt. → Recognise impairment loss
The carrying amount of an asset should not be reduced below the highest of:
- Its fair value less costs of disposal (if measurable)
- Its value in use (if measurable)
If the preceding rule is applied, further allocation of the impairment loss is made pro rata to the other assets of the unit (group of units).
Disclose for each class of assets:
- Amount of impairment losses (& reversals) recognised in P/L during the period and the line item(s) of the SOPL in which those impairment losses are included (or reversed).
- Amount of impairment losses (& reversals) on revalued assets recognised in OCI during the period.