Companies with substantial assets that may possibly subject to impairment, need to ensure that they fully comply with the disclosure requirements of IAS36 especially now that the financial crisis continues.

The aim of IAS 36, Impairment of Assets, is to ensure that assets are carried at a value which is no more than their recoverable amount.

According to IAS 36 provisions, if an asset's carrying value exceeds the amount that could be received through its use or its disposal, then the asset should be impaired so as its carrying value to reflect the economic benefits to be generated from that asset.

IAS 36 Impairment of Assets was issued by the International Accounting Standards Committee in June 1998.


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. (IAS36.1)


This Standard is applied in accounting for the impairment of assets. However it 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 existing IFRS (International Financial Reporting Standards) applicable to these assets contain requirements for recognising and measuring these assets. (IAS36.3)

Additionally this Standard does not apply to financial assets within the scope of IFRS 9, investment property measured at fair value in accordance with IAS 40, or biological assets related to agricultural activity measured at fair value less costs to sell in accordance with IAS 41. (IAS36.5)

Identifying an asset that may be impaired

  • An asset is impaired when its carrying amount exceeds its recoverable amount. (IAS36.8)
  • 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. (IAS36.9)
  • 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. (IAS36.11)

Recognition and measurement of an impairment loss

  • An impairment loss occurs only if the recoverable amount is less than carrying amount. An entity should compare the carrying amount of an asset in balance sheet with the recoverable amount of that asset; the recoverable amount of an asset is the higher of the value in use and the fair value less costs to sell.
  • Any impairment loss is taken to income statement immediately, unless the asset is carried at a revalued amount in accordance with another standard (i.e. IAS 16); in such a case an entity should firstly eliminate any revaluation surplus associated with that asset. Any excess is transferred to Income statement.
  • After the recognition of an impairment loss, the depreciation (amortisation) 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 (IAS36.63).

Determining value in use

To determine an asset's value in use, an entity should estimate the future cash flows of that asset (both inflows and outflows), and then discount these accordingly.

An entity should disclose each key assumption on which management has based its cash flow projections for the period covered by the most recent budgets/forecasts. Key assumptions are those to which the asset's recoverable amount is most sensitive (IAS36.134.i).

Companies should plan ahead and look if any indicators of possible impairment are in place so as to determine any impairment loss of their assets. This will ensure that assets value is properly disclosed to the financial statements.

Additionally any forecasts performed to establish an assets value in use, need to be based on valid assumptions which are reasonable, acceptable and consistent with forecasts of other entities of that sector or the views of independent to the company experts.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.