IAS 36 Impairment of assets

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. An asset is carried at more than
its recoverable amount if its carrying amount exceeds the amount
to be recovered through use or sale of the asset. If this is the case,
the asset is described as impaired and the Standard requires the
entity to recognise an impairment loss. The Standard also
specifies when an entity should reverse an impairment loss and
prescribes disclosures.

Identifying an asset that may be impaired

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. Irrespective of whether there
is any indication of impairment, an entity shall also:
(a) 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.
This impairment test may be performed at any time during an
annual period, provided it is performed at the same time every
year. Different intangible assets may be tested for impairment at
different times. However, if such an intangible asset was initially
recognised during the current annual period, that intangible asset
shall be tested for impairment before the end of the current annual
period.
(b) test goodwill acquired in a business combination for
impairment annually in accordance with paragraphs 80-99.
If there is any indication that an asset may be impaired,
recoverable amount shall be estimated for the individual asset. If
it is not possible to estimate the recoverable amount of the
individual asset, an entity shall determine the recoverable
amount of the cash-generating unit to which the asset belongs
(the asset’s cash-generating unit).
A cash-generating unit is 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.
Measuring recoverable amount

The recoverable amount of an asset or a cash-generating unit is

the higher of its fair value less costs to sell and its value in use.
It is not always necessary to determine both an asset’s fair value
less costs to sell and its value in use. If either of these amounts
exceeds the asset’s carrying amount, the asset is not impaired and
it is not necessary to estimate the other amount.
Fair value less costs to sell is the amount obtainable from the
sale of an asset or cash-generating unit in an arm’s length
transaction between knowledgeable, willing parties, less the
costs of disposal.
Value in use is the present value of the future cash flows
expected to be derived from an asset or cash-generating unit.

The following elements shall be reflected in the calculation of an

asset’s value in use:

(a) an estimate of the future cash flows the entity expects to derive
from the asset;

(b) expectations about possible variations in the amount or timing

of those future cash flows;

(c) the time value of money, represented by the current market

risk-free rate of interest;

(d) the price for bearing the uncertainty inherent in the asset;
and
(e) other factors, such as illiquidity, that market participants would
reflect in pricing the future cash flows the entity expects to
derive from the asset.

Estimates of future cash flows shall include:

(a) projections of cash inflows from the continuing use of the

asset;

(b) projections of cash outflows that are necessarily incurred to

generate the cash inflows from continuing use of the asset
(including cash outflows to prepare the asset for use) and can be
directly attributed, or allocated on a reasonable and consistent
basis, to the asset; and

(c) net cash flows, if any, to be received (or paid) for the
disposal of the asset at the end of its useful life.

Future cash flows shall be estimated for the asset in its current
condition. Estimates of future cash flows shall not include
estimated future cash inflows or outflows that are expected to arise
from:
(a) a future restructuring to which an entity is not yet committed;
or

(b) improving or enhancing the asset’s performance.

Estimates of future cash flows shall not include:

(a) cash inflows or outflows from financing activities; or

(b) income tax receipts or payments.

Recognising and measuring an impairment loss

If, and only 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.
An impairment loss shall be recognised immediately in profit or
loss, unless the asset is carried at revalued amount in accordance
with another Standard (for example, in accordance with the
revaluation model in IAS 16 Property, Plant and Equipment). Any
impairment loss of a revalued asset shall be treated as a revaluation
decrease in accordance with that other Standard.
An impairment loss shall be recognised for a cash-generating unit
(the smallest group of cash-generating units to which goodwill or a
corporate asset has been allocated) if, and only if, the recoverable
amount of the unit (group of units) is less than the carrying amount
of the unit (group of units). The impairment loss shall be
allocated to reduce the carrying amount of the assets of the
unit (group of units) in the following order:

(a) first, to reduce the carrying amount of any goodwill allocated

to the cash-generating unit (group of units); and

(b) then, to the other assets of the unit (group of units) pro rata on
the basis of the carrying amount of each asset in the unit
(group of units).

However, an entity shall not reduce the carrying amount of an

asset which forms part of an operating unit below the highest
of:

(a) its fair value less costs to sell (if determinable);

(b) its value in use (if determinable); and

(c) zero.

The amount of the impairment loss that would otherwise have been
allocated to the asset shall be allocated pro rata to the other assets
of the unit (group of units).

Goodwill

For the purpose of impairment testing, goodwill acquired in a

business combination shall, from the acquisition date, be
allocated to each of the acquirer’s cash-generating units, or
groups of cash-generating units, that is expected to benefit from
the synergies of the combination, irrespective of whether other
assets or liabilities of the acquiree are assigned to those units or
groups of units.
The annual impairment test for a cash-generating unit to which
goodwill has been allocated may be performed at any time during
an annual period, provided the test is performed at the same
time every year. Different cash-generating units may be tested for
impairment at different times. However, if some or all of the
goodwill allocated to a cash-generating unit was acquired in a
business combination during the current annual period, that unit
shall be tested for impairment before the end of the current annual
period.
The Standard permits the most recent detailed calculation made in
a preceding period of the recoverable amount of a cash-generating
unit (group of units) to which goodwill has been allocated to be
used in the impairment test for that unit (group of units) in the
current period, provided specified criteria are met.

Reversing an impairment loss

An entity shall assess at the end of each reporting period

whether there is any indication that an impairment loss
recognised in prior periods for an asset other than goodwill
may no longer exist or may have decreased. If any such
indication exists, the entity shall estimate the recoverable amount
of that asset.
An impairment loss recognised 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 recognised.
A reversal of an impairment loss for a cash-generating unit
shall be allocated to the assets of the unit, except for goodwill,
pro rata with the carrying amounts of those assets. The
increased carrying amount of an asset other than goodwill
attributable to a reversal of an impairment loss shall not
exceed the carrying amount that would have been determined
(net of amortisation or depreciation) had no impairment loss
been recognised for the asset in prior years.
A reversal of an impairment loss for an asset other than goodwill
shall be recognised immediately in profit or loss, unless the asset is
carried at revalued amount in accordance with another Standard
(for example, the revaluation model in IAS 16 Property, Plant and
Equipment). Any reversal of an impairment loss of a revalued asset
shall be treated as a revaluation increase in accordance with that
other Standard.
An impairment loss recognised for goodwill shall not be
reversed in a subsequent period.