Indian Accounting Standard (Ind AS) 36 Summary
Indian Accounting Standard (Ind AS) 36, Impairment of Assets prescribes the procedures that the entity should apply to ensure that its non-financial assets are carried at no more than their recoverable amount. A non-financial 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 Ind AS 36 requires the entity to recognise an impairment loss.
The impairment standard covers a variety of non-financial assets, including:
– Property, plant and equipment,
– Intangible assets and goodwill, and
– Investments in subsidiaries, associates and joint ventures.
Whenever possible, an impairment test is performed for an individual asset, unless the asset does not generate cash flows that are largely independent. Otherwise, assets are tested for impairment in Cash-Generating Units (CGUs). Goodwill is always tested for impairment at the level of a CGU or a group of CGUs.
A CGU is the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or groups thereof.
Goodwill is allocated to CGUs or groups of CGUs that are expected to benefit from the synergies of the business combination from which it arose. The allocation is based on the level at which goodwill is monitored internally, restricted by the size of the entity’s operating segments before aggregation.
Impairment testing is required when there is an indication of impairment.
Annual impairment testing is required for goodwill and intangible assets that either are not yet available for use or have an indefinite useful life. This impairment test may be performed at any time during the year, provided that it is performed at the same time each year.
An impairment loss is recognised if an asset’s or CGU’s carrying amount exceeds the greater of its fair value less costs to sell and value in use.
Estimates of future cash flows used in the value in use calculation are specific to the entity, and need not be the same as those of market participants. The discount rate used in the value in use calculation reflects the market’s assessment of the risks specific to the asset or CGU, as well as the time value of money.
An impairment loss for a CGU is allocated first to any goodwill and then pro rata to other assets in the CGU that are in the scope of the standard.
An impairment loss is generally recognised in the statement of profit and loss, except where required to be recognised in reserves by this standard.
Reversals of impairment are recognised, other than for impairments of goodwill.
A reversal of an impairment loss is generally recognised in the statement of profit and loss, except to the extent it is a reversal of an impairment loss previously recognised in reserves.