CA Final · Financial Reporting

Ind AS 36 Impairment of Assets: formula sheet

Full chapter guide

Key formulas

Recoverable amount: Recoverable amount = Higher of (FVLCD, Value in use); If either one exceeds the carrying amount, the asset is not impaired and you need not estimate the other.
Fair value less costs of disposal: FVLCD = Fair value (Ind AS 113) − Direct incremental costs of disposal; Costs include legal costs, stamp duty and transaction taxes, and costs of removing the asset. Finance costs and income tax expense are excluded.
Value in use: VIU = Σ [Expected future cash flow ÷ (1 + r)^t], including net disposal proceeds at end of life; Cash flows are pre-tax and exclude financing and tax receipts or payments. The discount rate is also pre-tax.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount, if carrying amount > recoverable amount; Recognised immediately in profit or loss, unless the asset is carried at a revalued amount, in which case it is treated as a revaluation decrease.
Annual test rule: Test every year: goodwill acquired in a business combination, indefinite-life intangibles, intangibles not yet available for use; For all other assets, test only if an indicator exists at the reporting date.
Indicator rule: Indicator exists → estimate recoverable amount; no indicator → no estimate needed; Also consider whether the remaining useful life, depreciation method or residual value needs review under the relevant standard, even if no impairment is recognised.
Recoverable amount: Recoverable amount = Higher of (FVLCD, Value in use); If either amount exceeds the carrying amount, there is no impairment and the other need not be computed.
Fair value less costs of disposal: FVLCD = Fair value (Ind AS 113) − Costs of disposal; Costs of disposal are direct selling costs. Termination benefits and reorganisation costs are excluded.
Value in use: VIU = Σ [Net cash flow in year t ÷ (1 + r)^t], including net disposal proceeds in the final year; r is a pre-tax discount rate. Use cash flows before financing and tax.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount (only if carrying amount is higher); Recognised immediately in profit or loss for an asset carried at cost. For a revalued asset, it is treated as a revaluation decrease.
Cash flow projection period: Detailed forecast: up to 5 years, then extrapolate with a steady or declining growth rate; A longer period needs justification. Growth should not exceed the long-term average for the product, industry or country unless justified.
Recoverable amount: Recoverable amount = higher of (Fair value − Costs of disposal) and Value in use; If either amount exceeds the carrying amount, there is no impairment.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount (when carrying amount is higher); Carrying amount is after depreciation and any earlier impairment.
Asset at cost: Dr Impairment loss (P&L) ; Cr Asset (or accumulated impairment); Whole loss goes to profit or loss.
Revalued asset: Dr Revaluation surplus (OCI) up to surplus held for that asset ; Dr P&L for the excess ; Cr Asset; Treated as a revaluation decrease under Ind AS 16.
Depreciation after impairment: New annual depreciation = (Revised carrying amount − Residual value) ÷ Remaining useful life; Applied prospectively from the period after impairment.
Floor on individual asset: Do not reduce the asset below the highest of: fair value less costs of disposal, value in use, zero; Any excess loss is allocated to other assets of the unit.
CGU definition: CGU = smallest identifiable group of assets generating cash inflows largely independent of other assets or groups; Test the CGU when recoverable amount of the individual asset cannot be estimated. An active market for the output makes the group a CGU, even if output is used internally.
Impairment loss of a CGU: Loss = Carrying amount of CGU − Recoverable amount of CGU (if positive); Recoverable amount = higher of fair value less costs of disposal and value in use. Carrying amount includes allocated goodwill and allocated corporate assets. It excludes recognised liabilities unless recoverable amount cannot be found without them.
Order of allocating the loss: 1) Goodwill allocated to the CGU. 2) Other assets pro rata: Loss to asset = Remaining loss × (Asset carrying amount ÷ Total carrying amount of the other assets); Pro rata is on carrying amounts, not on useful life or cost.
Floor for each asset: Asset cannot be reduced below the highest of: fair value less costs of disposal (if measurable), value in use (if determinable), zero; Reallocate the excess loss pro rata to the other assets of the CGU that still have room.
Goodwill allocation: Allocate to each CGU or group of CGUs expected to benefit from the synergies of the combination; Each unit or group must represent the lowest level at which goodwill is monitored for internal management purposes. It must not be larger than an operating segment before aggregation.
Corporate asset: allocation possible: Test: (CGU carrying amount + allocated share of corporate asset) vs CGU recoverable amount; Allocate on a reasonable and consistent basis. Typical bases are carrying amounts of the CGUs or a driver such as revenue or headcount.
Corporate asset: allocation not possible on a reasonable basis: Step 1: test the CGU without the corporate asset and recognise any loss. Step 2: find the smallest group of CGUs that includes this CGU and to which a share of the corporate asset can be allocated. Compare the group's carrying amount (with the corporate asset share) to the group's recoverable amount.; Recognise any further loss from Step 2 as well.
Impairment loss of a CGU: Impairment loss = Carrying amount of CGU (incl. goodwill) − Recoverable amount, if positive; Recoverable amount = higher of fair value less costs of disposal and value in use.
Gross-up of goodwill (partial goodwill method): Notional total goodwill = Goodwill recognised ÷ Parent's ownership %; Notional NCI goodwill = Notional total − Recognised; Needed only when NCI is measured at its proportionate share of net identifiable assets. Add the notional NCI goodwill to the unit's carrying amount for the test.
Allocation order of a CGU loss: 1st: reduce goodwill. 2nd: reduce other assets pro rata to carrying amounts; No asset goes below the highest of its fair value less costs of disposal, its value in use (if determinable) and zero. Redistribute any excess to the other assets pro rata.
Loss shared with NCI: Loss on full goodwill is shared between parent and NCI in the ratio in which profit or loss is shared; In the partial goodwill case, the part of the goodwill loss relating to notional NCI goodwill is not recognised.
Frequency and reversal: Goodwill, indefinite-life and not-yet-available intangibles: test every year. Goodwill impairment: no reversal; Other assets are tested on indication, and their losses can be reversed except for goodwill.
Cap on reversal (individual asset): Maximum carrying amount after reversal = lower of (Recoverable amount, Carrying amount had no impairment been recognised, net of depreciation); Reversal = this figure − present carrying amount. If negative or zero, no reversal.
Carrying amount without impairment: Original cost − depreciation charged as if no impairment had occurred up to the date of reversal; Use original useful life and residual value, adjusted only for genuine changes in estimates.
Allocation of reversal to a CGU: Reversal to an asset = Total reversal × Asset's carrying amount ÷ Total carrying amount of eligible assets; Goodwill is excluded. Each asset's share is limited to the lower of its recoverable amount (if determinable) and its no-impairment carrying amount. Redistribute any excess to the other assets pro rata.
Goodwill rule: Reversal of goodwill impairment = Nil; Applies always, including in interim periods.
Revised depreciation after reversal: Revised depreciation = (Revised carrying amount − Residual value) ÷ Remaining useful life; Adjust prospectively.
Recoverable amount: Recoverable amount = higher of (fair value less costs of disposal, value in use); Disclose the recoverable amount and which basis was used. The basis drives the extra detail required.
Impairment loss: Impairment loss = carrying amount − recoverable amount, if carrying amount is higher; Loss and reversals are disclosed by class of assets and by reportable segment.
Disclosure for a material loss: Events and circumstances + amount + nature of asset + recoverable amount and its basis. For a CGU, add: description of the CGU + loss by class of assets and by segment + change in aggregation of assets and reasons; If fair value less costs of disposal: give hierarchy level and technique, and the discount rate if a present value technique is used. If value in use: give the discount rate.
Goodwill or indefinite-life CGU disclosure: Carrying amount allocated + recoverable amount basis + key assumptions + projection period + growth rate + discount rate (value in use, or fair value less costs of disposal measured by a present value technique); Applies to each CGU with significant goodwill or indefinite-life intangibles relative to the entity's total. Add sensitivity if a reasonably possible change in a key assumption would cause impairment.
Reversal limit: Reversed carrying amount ≤ carrying amount had no impairment been recognised (net of depreciation); Goodwill impairment is never reversed. Useful to link with the disclosure of reversals.

Quick revision

Recoverable amount = higher of FVLCD and VIU.
Impairment loss = carrying amount − recoverable amount, when carrying amount is higher.
If either FVLCD or VIU exceeds carrying amount, there is no impairment and the other need not be computed. The standard permits this shortcut only when one of the two amounts exceeds the carrying amount.
If there is no reason to believe VIU materially exceeds FVLCD, FVLCD can be taken as the recoverable amount.
Goodwill and intangible assets not yet available for use or with indefinite life must be tested annually.
Other assets are tested only when there is an indication of impairment at the end of the reporting period.
VIU uses pre-tax cash flows and a pre-tax discount rate, and excludes financing and income tax cash flows.
VIU excludes cash flows from a future restructuring the entity is not yet committed to, and from improving or enhancing the asset's performance.
Loss on a CGU is allocated first to goodwill, then pro rata to other assets on carrying amounts.
No asset in a CGU is reduced below the highest of its FVLCD (if measurable), VIU (if determinable) and zero.
Loss on a revalued asset is treated as a revaluation decrease, first against the revaluation surplus.
Reversal is allowed for assets other than goodwill, capped at the carrying amount net of depreciation had no loss been recognised.
After a loss or reversal, depreciation is adjusted for the revised carrying amount over the remaining life.

Common mistakes

Taking the lower of FVLCD and VIU as recoverable amount. Fix: Recoverable amount is always the higher. Use the lower figure only if the case explicitly asks for it, which it will not.
Applying Ind AS 36 to inventories, deferred tax assets or financial assets. Fix: Check the scope list first. Inventories use NRV, financial assets use the expected credit loss model, and deferred tax follows Ind AS 12.
Including interest on loans and income tax paid in the cash flows used for value in use. Fix: Remove financing and tax flows. Financing effects sit in the discount rate, and tax is excluded because the rate is pre-tax.
Including future capex that will enhance capacity, along with the extra cash flows it brings. Fix: Exclude improvement or enhancement capex and its benefits. Maintenance capex needed to keep the asset's current standard of performance stays in.
Comparing the carrying amount with fair value without deducting costs of disposal. Fix: Always subtract direct selling costs before comparing, as the recoverable amount uses the net figure.
Taking the lower of fair value less costs of disposal and value in use as recoverable amount. Fix: Recoverable amount is always the higher of the two.
Treating each machine or building as a separate CGU even though they only earn cash together. Fix: Ask which assets must work together to earn cash inflows. Group them. Use the market-for-output test where it applies.
Allocating the loss pro rata across all assets including goodwill. Fix: Goodwill goes first, in full up to its carrying amount. Only the balance is shared pro rata among the other assets.
Comparing the unit's recoverable amount with a carrying amount that has no NCI goodwill, in the partial goodwill case. Fix: Gross up goodwill by dividing it by the parent's percentage. Add the notional NCI goodwill to the carrying amount before comparing.
Recognising the whole grossed-up loss in the consolidated books. Fix: Recognise only the parent's share of the goodwill loss when NCI is at proportionate share. Any loss on other assets is recognised in full.

Exam tips

Start every case answer with scope. A one-line exclusion, such as inventory under Ind AS 2, often earns a mark on its own.
Learn the indicator list as two groups, external and internal, and quote the matching fact from the case in your answer.
In numerical questions, show FVLCD and VIU as separate lines, then state the higher as recoverable amount. Marks are given for each step.
For MCQs, watch for words such as annual, goodwill, indefinite life and not yet available for use. These signal a compulsory test.
When asked to distinguish VIU and FVLCD, give the basis (entity-specific versus market participant), the cash flows involved and the treatment of costs.
Write the formula line 'Recoverable amount = higher of FVLCD and VIU' at the start. It earns marks even if your arithmetic slips.
Show a short list of excluded items (financing, tax, uncommitted restructuring, enhancement capex) with one-line reasons. Examiners look for this in case scenarios.
In MCQs, check first whether FVLCD already exceeds the carrying amount. If it does, the answer is 'no impairment' and you save time.