IAS 36 Impairment of Assets – Summary, Key Points & MCQs

Objective

Ensures assets are not carried at more than their recoverable amount, and sets out how to recognise and reverse impairment losses.

Most non-financial assets, including PPE, intangibles, goodwill, right-of-use assets, and investments in subsidiaries, associates and joint ventures.
Excludes inventories, contract assets, deferred tax assets, employee benefit assets, financial assets in IFRS 9, investment property at fair value, biological assets at fair value less costs to sell, and assets held for sale.

Recoverable amount: The higher of fair value less costs of disposal and value in use.
Value in use: Present value of the future cash flows expected from the asset or cash-generating unit (CGU), in its current condition.
Cash-generating unit: The smallest identifiable group of assets that generates cash inflows largely independent of other assets or groups.
Impairment loss: The amount by which carrying amount exceeds recoverable amount.

Assess at each reporting date whether there is any indication of impairment; if so, estimate recoverable amount.
Test annually regardless of indicators: goodwill, intangibles with indefinite lives, and intangibles not yet available for use.
External indicators: significant fall in market value, adverse changes in technology, markets or law, higher interest rates, market capitalisation below net assets.
Internal indicators: obsolescence or physical damage, plans to discontinue or restructure, worse-than-expected performance.

Value in use uses cash flows from the asset in its current condition (excluding uncommitted restructurings and enhancements, and excluding financing and tax), discounted at a pre-tax rate.
Impairment of an asset at cost goes to profit or loss; for a revalued asset it is a revaluation decrease (OCI first, to the extent of that asset's surplus).
Goodwill is allocated to the CGUs expected to benefit from the combination.
A CGU impairment is allocated first to goodwill, then pro rata to other assets in the unit — but no asset is reduced below the highest of its fair value less costs of disposal, value in use and zero.

Reverse an impairment of an asset other than goodwill if the estimates used to determine recoverable amount have changed.
The reversed carrying amount cannot exceed what it would have been (net of depreciation) had no impairment been recognised.
Impairment losses on goodwill are never reversed.

Impairment losses and reversals by class of asset, and where they are presented.
Events and circumstances leading to material losses or reversals.
For CGUs containing significant goodwill or indefinite-life intangibles: key assumptions, discount rates and sensitivity information.

Recoverable amount is the higher of the two measures, not the lower.
If either measure exceeds carrying amount, there is no impairment — you do not need to calculate the other.
Goodwill absorbs the CGU loss first; current assets like inventory and receivables are outside IAS 36's allocation.
Goodwill impairments can never be reversed.

Scenario. A machine has a carrying amount of $1,000k. Its fair value less costs of disposal is $820k and its value in use is $850k.

Answer: Recognise a $150k impairment loss in profit or loss (asset at cost); carry the machine at $850k.

Test your understanding of IAS 36 with free chapter-wise MCQs and explanations in these question banks.

ICAI CA Intermediate examines Indian Accounting Standards, which are based on but can differ from IFRS. Check your syllabus.