Indian Accounting Standard (Ind AS) 36 : Impairment of Assets
1. 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.
2. This Standard shall be applied in accounting for the impairment of all assets, other than:
(a) inventories (see Ind AS 2 Inventories);
(b) assets arising from construction contracts (see Ind AS 11 Construction Contracts);
(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 39 Financial Instruments: Recognition and Measurement;
(f) [Refer to Appendix 1];
(g) biological assets related to agricultural activity that are measured at fair value less costs to sell (see Ind AS 41 Agriculture1);
1 This standard is under formulation.
(h) deferred acquisition costs, and intangible assets, arising from an insurers 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.
3. This Standard does not apply to inventories, assets arising from construction contracts, deferred tax assets, assets arising from employee benefits, or assets classified as held for sale (or included in a disposal group that is classified as held for sale) because Indian Accounting Standards applicable to these assets contain requirements for recognising and measuring these assets.
4. This Standard applies to financial assets classified as:
(a) subsidiaries, as defined in Ind AS 27 Consolidated and Separate Financial Statements;
(b) associates, as defined in Ind AS 28 Investments in Associates; and
(c) joint ventures, as defined in Ind AS 31 Interests in Joint Ventures.
For impairment of other financial assets, refer to Ind AS 39.
5. This Standard does not apply to financial assets within the scope of Ind AS 39 or biological assets related to agricultural activity measured at fair value less costs to sell in accordance with Ind AS 412. However, this Standard applies to assets that are carried at revalued amount (ie fair value) in accordance with other Indian Accounting Standards, such as the revaluation model in Ind AS 16 Property, Plant and Equipment. Identifying whether a revalued asset may be impaired depends on the basis used to determine fair value:
(a) if the assets fair value is its market value, the only difference between the assets fair value and its fair value less costs to sell is the direct incremental costs to dispose of the asset:
(i) if the disposal costs are negligible, the recoverable amount of the revalued asset is necessarily close to, or greater than, its revalued amount (i e fair value). In this case, after the revaluation requirements have been applied, it is unlikely that the revalued asset is impaired and recoverable amount need not be estimated.
(ii) if the disposal costs are not negligible, the fair value less costs to sell of the revalued asset is necessarily less than its fair value. Therefore, the revalued asset will be impaired if its value in use is less than its revalued amount (i e fair value). In this case, after the revaluation requirements have been applied, an entity applies this Standard to determine whether the asset may be impaired.
(b) if the assets fair value is determined on a basis other than its market value, its revalued amount (i e fair value) may be greater or lower than its recoverable amount. Hence, after the revaluation requirements have been applied, an entity applies this Standard to determine whether the asset may be impaired.
2 This standard is under formulation.
6. The following terms are used in this Standard with the meanings specified:
An active market is a market in which all the following conditions exist:
(a) the items traded within the market are homogeneous;
(b) willing buyers and sellers can normally be found at any time; and
(c) prices are available to the public.
Carrying amount is the amount at which an asset is recognised after deducting any accumulated depreciation (amortisation) and accumulated impairment losses thereon.
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.
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.
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.
Depreciable amount is the cost of an asset, or other amount substituted for cost in the financial statements, less its residual value.
Depreciation (Amortisation) is the systematic allocation of the depreciable amount of an asset over its useful life.1
Fair value less costs to sell is the amount obtainable from the sale of an asset or cash-generating unit in an arms length transaction between knowledgeable, willing parties, less the costs of disposal.
An impairment loss is the amount by which the carrying amount of an asset or a cash-generating unit exceeds its 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.
Useful life is either:
(a) the period of time over which an asset is expected to be used by the entity; or
(b)the number of production or similar units expected to be obtained from the asset by the entity.
In the case of an intangible asset, the term amortisation is generally used instead of depreciation. The two terms have the same meaning.
Value in use is the present value of the future cash flows expected to be derived from an asset or cash-generating unit.
Identifying an asset that may be impaired
7. Paragraphs 817 specify when recoverable amount shall be determined. These requirements use the term an asset but apply equally to an individual asset or a cash-generating unit. The remainder of this Standard is structured as follows:
(a) paragraphs 1857 set out the requirements for measuring recoverable amount. These requirements also use the term an asset but apply equally to an individual asset and a cash-generating unit.
(b) paragraphs 58108 set out the requirements for recognising and measuring impairment losses. Recognition and measurement of impairment losses for individual assets other than goodwill are dealt with in paragraphs 5864. Paragraphs 65108 deal with the recognition and measurement of impairment losses for cash-generating units and goodwill.
(c) paragraphs 109116 set out the requirements for reversing an impairment loss recognised in prior periods for an asset or a cash-generating unit. Again, these requirements use the term an asset but apply equally to an individual asset or a cash-generating unit. Additional requirements for an individual asset are set out in paragraphs 117121, for a cash-generating unit in paragraphs 122 and 123, and for goodwill in paragraphs 124 and 125.
(d) paragraphs 126133 specify the information to be disclosed about impairment losses and reversals of impairment losses for assets and cash-generating units. Paragraphs 134137 specify additional disclosure requirements for cash-generating units to which goodwill or intangible assets with indefinite useful lives have been allocated for impairment testing purposes.
8. An asset is impaired when its carrying amount exceeds its recoverable amount. Paragraphs 1214 describe some indications that an impairment loss may have occurred. If any of those indications is present, an entity is required to make a formal estimate of recoverable amount. Except as described in paragraph 10, this Standard does not require an entity to make a formal estimate of recoverable amount if no indication of an impairment loss is present.
9. 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.
10. 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 8099.
11. The ability of an intangible asset to generate sufficient future economic benefits to recover its carrying amount is usually subject to greater uncertainty before the asset is available for use than after it is available for use. Therefore, this Standard requires an entity to test for impairment, at least annually, the carrying amount of an intangible asset that is not yet available for use.
12. In assessing whether there is any indication that an asset may be impaired, an entity...
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