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Impairment of Assets

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Ind AS-36 deals with impairment of assets that ensures assets are carried at no more than at a recoverable value. The standard also specifies when an entity should reverse an impairment loss and also provide disclosures while preparing and presenting the financial statements. 


  • Assets should be carried at no more than their recoverable amount, i.e. the amount expected to be recovered through the use of the asset, or its fair value less cost to date.
  • To specify procedures to be followed to ensure that assets are not carried at more than recoverable amount.
  • To specify when an impairment loss should be reversed.
  • To specify the required disclosures.

Impairment applies to all the assets except:

  • Inventories
  • Assets arising from construction contracts
  • Deferred Tax assets
  • Financial assets
  • Assets arising from employee benefits
  • Investment property measured at fair value
  • Biological assets measured at actual value less estimated point of sale costs
  • Assets arising from insurance contracts
  • Non-Current assets classified as held for sale

Also, the impairment of assets applies to the impairment of financial assets like subsidiaries, associates, joint ventures.

Indications of Impairment
Assets are impaired when carrying amount (CA) > recoverable amount (RA).
Assessment at the end of each reporting period should be done to check whether there are any impairment indicators. If such indicators exist, then estimate the recoverable amount of the asset.

Following are a few sources which indicate impairment:

External Sources

Internal Sources

  • A significant decline in market value
  • Evidence of obsolescence or physical damage
  • Technological, market, economic, legal environment
  • Discontinuance, disposal, restructuring plans
  • Increase in interest rates or rates of return
  • Asset performance declining or expected to decline
  • Lower market capitalization than equity book value

Following disclosures are to be made in the books of accounts:

  • Amount if impairment losses recognized/reversed during the period in
    • Income statement and
    • Directly to equity.
  • If recognized in the income statement, the disclosure of these items is included therein.
  • Segment reporting information
  • By category of asset
    • Disclosure of losses when impairment losses are material for an individual asset
    • Disclosure of information which is used for determining the recoverable amount
    • The discount rate used.

Impairment of asset helps to understand the track record and decision-making ability of a company and also provides with the warnings for proactiveness. If done correctly, it provides more valuable and accurate information to its stakeholders. 

Through impairment, none of the methods for calculating cash flows is a full – proof, and also there is no in-depth explanation and procedure for assessing the impairment cost. Determining fair value has always been an integration of both science and art, and different experts can arrive honestly at other valuations.

At AJSH, we assist our clients in bookkeeping, payroll, auditing, taxation, secretarial compliances, and preparation of financial statements ensuring compliance with applicable accounting standards. If you have any questions or wish to know more about compliances with Ind AS 36 Impairment of asset, kindly contact us.


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