IAS 36
Impairment of Assets
1Objective and scope
IAS 36 ensures that assets are carried at no more than their recoverable amount, and prescribes the circumstances in which an entity recognises an impairment loss (and, for assets other than goodwill, when it reverses one). It applies broadly, though inventories, financial assets, deferred tax assets and a handful of other items covered by their own standards are excluded.
2Key definitions
3Identifying and measuring impairment
At each reporting date, an entity assesses whether there is any indication that an asset may be impaired (external indicators: a significant decline in market value, adverse changes in the technological, market, economic or legal environment, an increase in market interest rates; internal indicators: evidence of obsolescence or physical damage, a restructuring plan, evidence that an asset's economic performance is worse than expected). Goodwill and intangible assets with an indefinite useful life are tested for impairment at least annually, whether or not there is any indication of impairment.
If the recoverable amount is less than the carrying amount, an impairment loss is recognised immediately in profit or loss (or, for a revalued asset, treated first as a revaluation decrease against any revaluation surplus for that asset, per IAS 16/38). For a cash-generating unit, an impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the unit, and then pro-rata to the other assets of the unit, based on their carrying amounts.
Goodwill impairment is never reversed
An impairment loss recognised for goodwill can never be reversed in a later period, even if the recoverable amount subsequently recovers - unlike impairment losses on other assets, which are reversed (up to the carrying amount, net of depreciation, that would have applied had no impairment been recognised) if the estimates used to determine recoverable amount have changed.
4Presentation and disclosure
- The amount of impairment losses (and reversals) recognised in profit or loss, and in other comprehensive income, by class of asset and by reportable segment
- For each cash-generating unit with significant goodwill or indefinite-life intangibles allocated to it, the key assumptions used in determining recoverable amount and their sensitivity
5Examinable focus
What KASNEB tests
Allocating an impairment loss across a cash-generating unit's assets (goodwill written off first, then the remainder pro-rata, with no individual asset written down below the higher of its own fair value less costs of disposal, value in use, or zero) is the standard numerical question. Also expect scenario-based identification of impairment indicators, and the rule that goodwill impairment is never reversed.