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The objective of this standard is to prescribe the procedures that an entity applies to ensure that its assets are carried at no more than their recoverable Amount. The Standard also specifies when an entity should reverse an impairment loss and prescribes disclosures.

This Standard is applicable to all assets, other than:-

  • Inventories
  • Contract Assets and assets arising from costs to obtain or fulfill a contract that are recognized in accordance with Ind AS-115
  • Deferred Tax Assets
  • Assets arising from employee benefits
  • Financial Assets
  • Biological Assets related to Agricultural Activity
  • deferred acquisition costs, and intangible assets, arising from an insurer’s contractual rights under insurance contracts
  • Non Current Assets

What is Impairment?

An Asset is impaired when it’s carrying Amount Exceeds its recoverable amount.

When to Test for Impairment?

An entity shall assess at the end of each reporting period whether any indication for impairment of asset exists. The entity shall estimate the recoverable amount if any indication exists.

However, in the case of goodwill acquired in a business combination, indefinite life intangible assets and intangible assets that are not yet ready for use must also be tested for impairment annually irrespective of whether there are  any indications of impairment.

External Indications:-

  • Decline in the market value of the Asset.
  • Significant changes having adverse affect on the entity in the technological, market, economic and legal environment in which the entity operates.
  • Increase in market interest rates
  • The carrying amount of the net assets of the entity is more than its market capitalization

Internal Indications:-

  • Obsolescence or physical damage of an asset.
  • Declining Assets Performance.
  • Plans to discontinue or restructure the operation to which an asset belongs.

The above list is not exhaustive. An entity may identify other indications that an asset may be impaired.

How to calculate impairment loss?

If recoverable amount < Carrying amount of an asset / CGU

Impairment Loss= Carrying Amount – Recoverable Amount

Recoverable amount of an asset/CGU is the higher of its fair value less costs of disposal and its value in use.

Fair value is 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 is the present value of the future cash flows expected to be derived from an asset/ CGU

Recognition of Impairment Loss

If there is no revaluation of asset, then Impairment Loss shall be recognized as an expense in the P&L Account . Otherwise, as a decrease in revaluation reserve.

Recognition of Impairment Loss for a CGU

First write down any Goodwill allocated to the CGU. Then, to the other assets of the CGU on pro rata basis on the basis of the carrying amount of each asset in the CGU.

Reversal of Impairment Loss

An impairment loss recognized in prior periods for an asset other than goodwill shall be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. If this is the case, the carrying amount of the asset shall be increased to its recoverable amount. That increase is a reversal of an impairment loss.

A reversal of an impairment loss for an asset other than goodwill shall be recognized immediately in P&L A/c. However, in case of revalued asset any reversal shall be treated as a revaluation increase.

An impairment loss recognized for goodwill shall not be reversed in a subsequent period.

Compiled By
Mallika Gulati
(CA final Student)

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April 2024