Impairment of assets

Impairment of assets requires that the recoverable amount of an asset should be estimated whenever there is indication that the asset may be impaired.


Impairment of assets requires an impairment loss to be recognised (an asset is impaired) whenever the carrying amount of an asset exceeds its recoverable amount. An impairment loss should be recognised in the income statement for assets carried at cost and treated as a revaluation decrease for assets carried at revalued amount.

Impairment of assets requires recoverable amount to be measured as the higher of net selling price and value in use:

  1. net selling price is the amount obtained from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties, after deducting any direct incremental disposal costs; and
  2. value in use is the present value of estimated future cash flows expected to arise from continuing use of an asset and from its disposal at the end of its useful life. The discount rate should be a pre-tax rate that reflects current market assessments of the time value of money and risks specific to the asset.

In determining an asset’s value in use, Impairment of assets requires that an enterprise should use, among other things:

  1. cash flow projections based on reasonable and supportable assumptions that:
    1. reflect the asset in its current condition; and
    2. represent management’s best estimate of the set of economic conditions that will exist over the remaining useful life of the asset; and
  2. a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. The discount rate should not reflect risks for which future flows have
    been adjusted.

Recoverable amount should be estimated for an individual asset. If it is not possible to do so, the Standard requires an enterprise to determine recoverable amount for the cash-generating unit to which the asset belongs.  A cash-generating unit is the smallest identifiable group of assets that generate cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. However, if the output produced by an asset or group of  assets is traded in an active market, this asset or group of assets should be identified as a separate cash-generating unit, even if some or all of the production of these assets are used internally.


Impairment definition: A loss in the future economic benefits or service potential of an asset, over and above the systematic recognition of the loss of the asset’s future economic benefits or service potential through depreciation.

Impairment loss – An impairment loss is the amount by which the carrying amount of an asset  or a cash-generating unit exceeds its recoverable amount.

Impairment gain or loss – Gains or losses that are recognised in profit or loss in accordance with IFRS 9 paragraph 5.5.8 and that arise from applying the impairment requirements in IFRS 9 Section 5.5.

Impairment loss of a cash-generating assetThe amount by which the carrying amount of an asset exceeds its recoverable amount.

Impairment loss of a non-cash-generating assetThe amount by which the carrying amount of an asset exceeds its recoverable service amount.


IAS 36 Impairment of assets applies to:

  • property, plant and equipment;
  • intangible assets;
  • goodwill;
  • investments in entities measured at cost; and
  • cash-generating units.

The standard requires an entity to recognise impairment when its assets are carried at more than their recoverable amount. The standard prescribes procedures that an entity has to apply to ensure assets are carried at no more than their recoverable amount as illustrated here.

References: Simplified approach | General approach

In terms of IAS 36 at the end of each reporting period, the reporting entity is required to assess whether there is an indication that an asset may be impaired. A list of external and internal indicators of impairment are described by IAS 16. If there’s an indication that the entity’s asset(s) may be impaired then the asset(s) recoverable amount must be calculated.

IAS 36 prescribes that goodwill acquired in a business combination is tested annually for impairment and recoverable amounts determined whether or not there are any internal or external indications of impairment. The same applies for intangible assets with an indefinite useful life and intangible assets not yet available for use (e.g. Software that is work in progress).


General model of measurement of insurance contracts

Impairment of assets

Impairment of assets

Impairment of assets Impairment of assets Impairment of assets Impairment of assets Impairment of assets

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