Accounting for

Impairment of Assets
2012 13, Term VI
CA K.P.Rajendran
kprajen@gmail.com

Impairment of Assets
Impairment of an asset (whether
tangible or intangible) is the fall in
value of an asset, so that its
recoverable amount is now less than
its carrying value in the statement of
financial position.

Impairment of Assets
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.

Impairment of Assets
An entity shall also test an intangible
asset with an indefinite useful life or
an intangible asset not yet available
for use for impairment annually by
comparing its carrying amount with
its recoverable amount.

Impairment of Assets
An asset is said to be impaired if its
carrying amount is less than its
recoverable amount.

Impairment of Assets
Carrying amount is the amount at
which an asset is recognized after
deducting any accumulated
depreciation (amortization) and
accumulated impairment losses
thereon.

Impairment of Assets
The recoverable amount of an asset is
the higher of:
the asset's fair value less cost to sell;
and
its value in use.

Impairment of Assets
Fair value less cost to sell is the
amount obtainable from the sale of
an asset (that is its market price less
cost to sell).
Cost to sell is the cost of disposal of
an asset including legal expenses,
brokerage and other transaction
costs.

Impairment of Assets
Value in use of an asset is the present
value of the future cash flows
expected to be derived from an asset,
including its estimated net disposal
value (if any) at the end of its
expected useful life.

Impairment of Assets
The discount rate used for
determining the present value of the
expected future cash flow would be
the appropriate discount rate for the
entity after considering the risk.

Impairment of Assets
If the 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.

Impairment of Assets
An impairment loss shall be treated
just like a revaluation loss.

Impairment of Assets
The impairment loss shall normally be
recognised immediately in profit or
loss

Impairment of Assets
But if there is any revaluation surplus
relating to that asset, then the
impairment loss can be reduced from
that revaluation surplus.

Impairment of Assets
Any reversal of an impairment loss
for an asset shall be credited to profit
and loss account.
But any reversal of impairment loss
for a revalued asset should be treated
as a revaluation surplus.

Impairment of Assets
The only exception is goodwill. An
impairment loss recognised for
goodwill shall not be reversed in a
subsequent period.