Indian Accounting Standard

(Ind AS) 36 - Impairment of Assets

Objective
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
recognize an impairment loss.
The Standard also specifies when an entity should reverse an impairment loss and prescribes
disclosures.

Scope
This Standard shall be applied in accounting for the impairment of all assets, other than:
(a) Inventories (see Ind AS 2, Inventories);
(b) contract assets and assets arising from costs to obtain or fulfill a contract that are recognized in
accordance with Ind AS 115, Revenue from Contracts with Customers;
(c) Deferred tax assets (see Ind AS 12, Income Taxes);
(d) Assets arising from employee benefits (see Ind AS 19, Employee Benefits);
(e) Financial assets that are within the scope of Ind AS 109, Financial Instruments;
(f) Biological assets related to agricultural activity within the scope of Ind AS 41 Agriculture that are
measured at fair value less costs to sell ;
(h) Deferred acquisition costs, and intangible assets, arising from an insurer’s contractual rights under
insurance contracts within the scope of Ind AS 104, Insurance Contracts; and
(i) non-current assets (or disposal groups) classified as held for sale in accordance with Ind AS 105,
non-current Assets Held for Sale and Discontinued Operations.

Definitions
The following terms are used in this Standard with the meanings specified:
1. Carrying amount is the amount at which an asset is recognized after deducting any
accumulated depreciation (amortization) and accumulated impairment losses thereon.
2. 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.
3. Corporate assets are assets other than goodwill that contribute to the future cash flows of
both the cash-generating unit under review and other cash generating units.
4. Costs of disposal are incremental costs directly attributable to the disposal of an asset or
cash-generating unit, excluding finance costs and income tax expense.
5. Depreciable amount is the cost of an asset, or other amount substituted for cost in the
financial statements, less its residual value.
6. Depreciation (Amortization) is the systematic allocation of the depreciable amount of an
asset over its useful life.
7. 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. (See Ind
AS 113, Fair Value Measurement.)
8. An impairment loss is the amount by which the carrying amount of an asset or a cash-
generating unit exceeds its recoverable amount.
 9. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value
less costs of disposal and its value in use.

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 recognized 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 the prescribed manner.

In assessing whether there is any indication that an asset may be impaired, an entity shall consider,
as a minimum, the following indications:

External sources of information

(a) There are observable indications that the asset’s value has declined during the period significantly
more than would be expected as a result of the passage of time or normal use.
(b) Significant changes with an adverse effect on the entity have taken place during the period, or will
take place in the near future, in the technological, market, economic or legal environment in which
the entity operates or in the market to which an asset is dedicated.
(c) Market interest rates or other market rates of return on investments have increased during the
period, and those increases are likely to affect the discount rate used in calculating an asset’s value
in use and decrease the asset’s recoverable amount materially.
(d) The carrying amount of the net assets of the entity is more than its market capitalization.
Internal sources of information
(e) Evidence is available of obsolescence or physical damage of an asset.
(f) significant changes with an adverse effect on the entity have taken place during the period, or are
expected to take place in the near future, in the extent to which, or manner in which, an asset is
used or is expected to be used. These changes include the asset becoming idle, plans to discontinue
or restructure the operation to which an asset belongs, plans to dispose of an asset before the
previously expected date, and reassessing the useful life of an asset as finite rather than indefinite.
(g) Evidence is available from internal reporting that indicates that the economic performance of an
asset is, or will be, worse than expected.

Measuring recoverable amount

This Standard defines recoverable amount as the higher of an asset’s or cash generating unit’s
fair value less costs of disposal and its value in use.
It is not always necessary to determine both an asset’s fair value less costs of disposal 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.
It may be possible to measure fair value less costs of disposal, even if there is not a quoted price
in an active market for an identical asset . However, sometimes it will not be possible to measure
fair value less costs of disposal because there is no basis for making a reliable estimate of the
price at which an orderly transaction to sell the asset would take place between market
participants at the measurement date under current market conditions. In this case, the entity may
use the asset’s value in use as its recoverable amount.

Fair value less costs of disposal

Costs of disposal, other than those that have been recognized as liabilities, are deducted in measuring
fair value less costs of disposal. Examples of such costs are legal costs, stamp duty and similar
transaction taxes, costs of removing the asset, and direct incremental costs to bring an asset into
condition for its sale. However, termination benefits (as defined in Ind AS 19) and costs associated with
reducing or reorganizing a business following the disposal of an asset are not direct incremental costs to
dispose of the asset.

Value in use
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.

Estimating the value in use of an asset therefore, involves the following steps:
(a) Estimating the future cash inflows and outflows to be derived from continuing use of the
asset and from its ultimate disposal; and
(b) Applying the appropriate discount rate to those future cash flows.

Recognizing 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 recognized 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 Ind AS 16). Any impairment loss of a revalued asset shall be treated as a
revaluation decrease in accordance with that other Standard.
 An impairment loss on a non-revalued asset is recognized in profit or loss.
 However, an impairment loss on a revalued asset is recognized in other comprehensive income
to the extent that the impairment loss does not exceed the amount in the revaluation surplus
for that same asset. Such an impairment loss on a revalued asset reduces the revaluation
surplus for that asset.
 When the amount estimated for an impairment loss is greater than the carrying amount of the
asset to which it relates, an entity shall recognize a liability if, and only if, that is required by
another Standard.
 After the recognition of an impairment loss, the depreciation (amortization) charge for the asset
shall be adjusted in future periods to allocate the asset’s revised carrying amount, less its
residual value (if any), on a systematic basis over its remaining useful life.