IAS 36 Impairment of Assets

In this session, I cover IAS 36 impairment of assets. IAS 36 is covered in international accounting and ACCA exam. IAS 36 Impairment of Assets sets out requirements for impairment which cover a range of assets (and groups of assets, termed 'cash generating units' or CGUs). The core underlying principle of IAS 36 Impairment of Assets is that an asset’s carrying value in the financial statements of the company should not exceed the highest amount the business can recover through its use or sale.
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The core principle in IAS 36 is that an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount exceeds the recoverable amount, the asset is described as impaired. The entity must reduce the carrying amount of the asset to its recoverable amount, and recognise an impairment loss. IAS 36 also applies to groups of assets that do not generate cash flows individually (known as cash-generating units).
IAS 36 applies to all assets except those for which other Standards address impairment. The exceptions include inventories, deferred tax assets, assets arising from employee benefits, financial assets within the scope of IFRS 9, investment property measured at fair value, biological assets within the scope of IAS 41, some assets arising from insurance contracts, and non-current assets held for sale.
The recoverable amount of the following assets in the scope of IAS 36 must be assessed each year: intangible assets with indefinite useful lives; intangible assets not yet available for use; and goodwill acquired in a business combination. The recoverable amount of other assets is assessed only when there is an indication that the asset may be impaired. Recoverable amount is the higher of (a) fair value less costs to sell and (b) value in use.
Fair value less costs to sell is the arm’s length sale price between knowledgeable willing parties less costs of disposal.
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