CMA Final · Corporate Financial Reporting

Impairment of Assets (Ind AS 36): formula sheet

Full chapter guide

Key formulas

Recoverable amount: Recoverable amount = higher of (Fair value less costs of disposal, Value in use); Taken from the definition in the Standard. You need not compute both if one already exceeds the carrying amount.
Fair value less costs of disposal: Fair value less costs of disposal = Fair value − Costs of disposal; Costs of disposal are incremental and directly attributable. Finance costs and income tax expense are excluded.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount, when carrying amount is higher; If recoverable amount is equal to or above carrying amount, there is no impairment loss.
Carrying amount of an asset: Carrying amount = Cost (or revalued amount) − Accumulated depreciation − Accumulated impairment losses; Always take it after depreciation up to the test date.
CGU carrying amount with liability: CGU carrying amount = Carrying amount of assets − Carrying amount of recognised liability that the buyer would assume; Deduct the same liability from value in use too, so the comparison is like for like. Example: mine with a restoration provision.
Revalued asset with negligible disposal costs: Disposal costs negligible → recoverable amount ≈ or > revalued amount → asset unlikely to be impaired; If disposal costs are not negligible, the asset is impaired when value in use is less than the revalued amount.
Recoverable amount: Recoverable amount = Higher of (FVLCOD, VIU); Para 18. Applies equally to an individual asset or a CGU.
Fair value less costs of disposal: FVLCOD = Fair value − Direct incremental costs of disposal; Fair value is measured under Ind AS 113. Costs of disposal are only the direct incremental costs.
Value in use: VIU = Σ [Expected net cash flow in year t ÷ (1 + r)^t]; Include the net cash flow from final disposal in the last year. r is the discount rate.
Impairment test: Impaired if Recoverable amount < Carrying amount; Impairment loss = Carrying amount − Recoverable amount.
Shortcut rule: If FVLCOD > Carrying amount, or VIU > Carrying amount, no impairment; Para 19. The other amount need not be estimated.
CGU with recognised liability: Deduct the liability's carrying amount from both the CGU's carrying amount and its VIU; Para 78. FVLCOD is the price for the assets and liability together, less disposal costs.
Recoverable amount: Recoverable amount = Higher of (Fair value less costs of disposal, Value in use); Compare with carrying amount. If either measure is above carrying amount, there is no impairment.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount (if positive); Carrying amount is after depreciation up to the test date.
Non-revalued asset (para 60): Dr Impairment loss (P&L) ; Cr Asset (or accumulated impairment); Recognised immediately in profit or loss.
Revalued asset (paras 60 and 61): Dr Revaluation surplus (OCI) up to surplus of that asset ; Dr P&L for the excess ; Cr Asset; Surplus is tracked for the same asset only. The OCI part reduces that surplus.
Depreciation after impairment (para 63): New annual depreciation = (Revised carrying amount − Residual value) ÷ Remaining useful life; Applies from the period after the loss, on a systematic basis.
Impairment test for a CGU: Impairment loss = Carrying amount of CGU − Recoverable amount, only if recoverable amount < carrying amount; Carrying amount includes allocated goodwill and the allocated share of corporate assets. Recoverable amount is the higher of fair value less costs of disposal and value in use.
Order of allocating the loss (para 104): Step 1: reduce goodwill allocated to the CGU. Step 2: reduce other assets pro rata to their carrying amounts; Pro rata means in proportion to carrying amount after goodwill has been written down. These reductions are treated as impairment losses on individual assets.
Pro rata share of an asset: Loss to asset = Remaining loss × (Asset carrying amount ÷ Total carrying amount of the other assets); Use only the assets that share the loss, not goodwill once it is fully written off.
Gross-up for NCI (para C4): Adjusted carrying amount = Goodwill recognised + Goodwill attributable to NCI + Net identifiable assets; Needed only when NCI is measured at its proportionate share of net identifiable assets. Compare the adjusted amount with recoverable amount.
Loss attributable to NCI (para C6): Loss shared between parent and NCI on the same basis as profit or loss; Applies where the subsidiary is itself a CGU. Under para C8, NCI loss relating to unrecognised goodwill is not recognised as goodwill impairment.
Sequence of testing (para 98): Test the individual asset first, then the CGU containing goodwill, then the group of CGUs; Recognise each loss before testing the next higher level.
Reversal test: Reverse only if there is a change in the estimates used to determine recoverable amount since the last impairment loss; Applies to an asset other than goodwill (para 114). An indicator review comes first.
Ceiling on carrying amount after reversal: New carrying amount = lower of (a) recoverable amount and (b) carrying amount had no impairment been recognised (net of depreciation); Paras 114 and 117. For a CGU, this ceiling applies to each asset (para 123).
Reversal amount: Reversal = New carrying amount − Carrying amount before reversal; Carrying amount before reversal is after depreciation charged on the impaired amount.
Goodwill: Impairment loss on goodwill: no reversal; Para 124. Para 125 gives the reason: later increases are likely internally generated goodwill.
Recognition of reversal: Cost model: reversal in profit or loss. Revalued asset: treated as a revaluation increase; Para 119.
CGU allocation of reversal: Excess over an asset's cap is allocated pro rata to the other assets of the unit, except goodwill; Para 123.

Quick revision

Recoverable amount = higher of fair value less costs of disposal and value in use.
Impairment loss = carrying amount minus recoverable amount, only if carrying amount is higher.
Carrying amount is after accumulated depreciation and accumulated impairment losses.
Costs of disposal are incremental costs directly attributable to disposal, excluding finance costs and income tax expense.
Value in use is the present value of future cash flows expected from the asset or CGU.
An asset is tested alone unless it lacks largely independent cash inflows; then its CGU is tested.
CGU loss order: goodwill first, then other assets pro rata to carrying amounts.
Corporate assets cannot be tested alone unless management has decided to dispose of them; test the CGU they belong to.
Reversal of a loss on an asset other than goodwill goes to profit or loss, unless the asset is revalued; then it is a revaluation increase.
Reversal cannot lift an asset above the lower of recoverable amount and depreciated carrying amount without the earlier loss.
Impairment loss on goodwill is not reversed, since any later increase is likely internally generated goodwill.
Disclose events leading to the loss, amount, nature of asset or CGU description, recoverable amount and its basis.

Common mistakes

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. The entity can recover the better of selling or using.
Deducting finance costs or income tax from fair value when computing costs of disposal. Fix: Costs of disposal are incremental, directly attributable costs only. Finance costs and income tax expense are excluded.
Using the lower of FVLCOD and VIU as recoverable amount. Fix: Recoverable amount is always the higher of the two. The higher figure shows the best value the entity can recover.
Deducting finance costs or income tax from the cash flows used in VIU, or computing both measures when one is enough. Fix: Do not build financing or tax items into the cash flows unless the question expressly says so. Use para 19 to stop early when one measure already exceeds carrying amount.
Using 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. Only compare it with carrying amount afterwards.
Charging the whole loss on a revalued asset to profit or loss. Fix: For a revalued asset, use the revaluation surplus of that asset first. Only the excess goes to profit or loss.
Allocating the loss pro rata to all assets including goodwill. Fix: Para 104 is two steps. Goodwill is reduced first. Only the balance goes pro rata to the other assets.
Leaving out the allocated corporate assets or goodwill from the unit's carrying amount. Fix: Include them in the carrying amount when allocated on a reasonable and consistent basis, as para 77 warns. Otherwise the unit may look fully recoverable.
Reversing an impairment loss on goodwill when the CGU recovers Fix: Remember para 124: goodwill losses are never reversed. In a CGU reversal, allocate nothing to goodwill.
Restoring the asset to recoverable amount without applying the cap Fix: Always compute the carrying amount without impairment and take the lower figure.

Exam tips

Write the definition of recoverable amount in the first line of any numerical answer. Examiners award marks for stating the higher-of rule.
In case-based MCQs, sort each fact into internal or external indicator, and check whether the question hints at a mandatory annual test such as goodwill.
When a liability such as a restoration provision is given, deduct it from both carrying amount and value in use. This is a favourite trap.
For revalued assets, always check whether disposal costs are negligible. It decides whether any estimate is needed.
Show costs of disposal as a separate line so a reader sees you excluded finance costs and tax.
Write the definition from para 18 in one line first. It earns marks and frames your answer.
Always state which measure you used and why, citing the shortcut (para 19) when you skip one.
Show the discounting table clearly, with the disposal cash flow in the final year.