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CA Final · Financial Reporting

Ind AS 36 Impairment of Assets for CA Final FR

Ind AS 36 ensures an asset is not carried above its recoverable amount. Recoverable amount is the higher of fair value less costs of disposal and value in use. If carrying amount exceeds it, you recognise an impairment loss. Solve by finding the asset or CGU, computing both amounts, comparing, then allocating the loss.

What this chapter covers

Ind AS 36 deals with one question: is an asset carried in the books at more than the entity can recover from it? If yes, the asset is impaired. The standard tells you when to test, how to measure the recoverable amount, how to book the loss, and when you may reverse it.

The chapter has a clear flow. You identify the asset or cash-generating unit (CGU), estimate fair value less costs of disposal (FVLCD) and value in use (VIU), take the higher, and compare it with the carrying amount. Any shortfall is the impairment loss. Then you allocate it: first to goodwill, then pro rata to the other assets of the CGU, subject to the floor rule for each asset.

The chapter connects to much of the paper. It links to Ind AS 16 and Ind AS 38 (carrying amounts, revaluation, depreciation), Ind AS 103 and Ind AS 110 (goodwill and non-controlling interest), Ind AS 105 (assets held for sale), and Ind AS 113 (fair value). Questions often combine it with these, so you should treat it as a chapter of working and judgement, not only theory.

Impairment is a favourite area for case-scenario MCQs and for numerical written answers, because one scenario can test several ideas: VIU discounting, CGU allocation, goodwill, non-controlling interest and reversal. The working is mechanical once you know the sequence, so the marks are very reachable. Students who learn the order of steps and the limits on allocation and reversal score steadily here, while those who memorise only definitions lose marks on the numbers. It also feeds into consolidation and Paper 6 integrated case studies.

Ind AS 36 Impairment of Assets: topics in the order to study them

  1. 1Scope, Definitions and Identifying an Impaired AssetStart here to learn the key terms (carrying amount, recoverable amount, CGU) and the indicators that trigger a test.
  2. 2Measuring Recoverable Amount and Value in UseEvery later calculation depends on this, so master FVLCD, VIU cash flows and discount rate next.
  3. 3Recognising and Measuring Impairment LossOnce you can find recoverable amount, you learn to book the loss, including the treatment of revalued assets.
  4. 4Cash-Generating Units and Corporate AssetsMany assets do not generate independent cash flows, so you need CGU grouping and allocation of the loss, with goodwill reduced first and then the other assets pro rata.
  5. 5Goodwill and Non-Controlling Interest ImpairmentThis builds on CGUs and adds annual testing and the grossing up of goodwill when non-controlling interest exists.
  6. 6Reversal of Impairment LossReversal reuses all earlier steps and adds the caps, so it comes after you know how the loss was created.
  7. 7Disclosures and Differences from IAS 36Study this last, as it is mostly recall and is easier once the whole logic is clear.

How to prepare Ind AS 36 Impairment of Assets

Treat this chapter as a fixed sequence of steps you can apply to any scenario. Practise the sequence until it is automatic, then add the exceptions.

  1. Read the standard's flow once: indicators, recoverable amount, comparison, loss, allocation, reversal. Write it as a one-page chart.
  2. Learn the definitions precisely, especially the difference between FVLCD and VIU and what costs of disposal include.
  3. Practise VIU questions: list cash flows, exclude financing and tax cash flows, apply the discount factor and add terminal value if given.
  4. Do CGU problems in order: compute loss, reduce goodwill first, then allocate pro rata to other assets, and check no asset falls below the highest of its FVLCD (if measurable), VIU (if determinable) and zero.
  5. Solve goodwill questions with non-controlling interest, noting how goodwill is notionally grossed up when NCI is measured at proportionate share of net assets. Test the CGU including the grossed-up goodwill and allocate the loss first to goodwill. Attribute the loss to the parent and the NCI on the same basis as profit or loss is allocated. Recognise only the parent's share of the goodwill impairment, because the notional goodwill of the NCI is not recorded in the books.
  6. Practise reversal: the increased carrying amount must not exceed the lower of the recoverable amount (where applicable) and the depreciated carrying amount that would have existed had no loss been recognised. Never reverse goodwill impairment.
  7. Finish with mixed case-scenario MCQs and past written questions, then revise disclosures and differences from IAS 36 from a short list.

Common mistakes in Ind AS 36 Impairment of Assets

  • Using post-tax cash flows or a post-tax rate in value in use.

    Fix: Remember the standard requires pre-tax cash flows discounted at a pre-tax rate. Exclude tax and financing cash flows unless the question states otherwise.

  • Allocating a CGU loss pro rata to all assets including goodwill.

    Fix: Always reduce goodwill first. Only the remaining loss is spread pro rata over the other assets.

  • Ignoring the floor when allocating a loss to an individual asset.

    Fix: Check each asset against the highest of its FVLCD (if measurable), VIU (if determinable) and zero. If capped, reallocate the excess to the other assets pro rata.

  • Reversing goodwill impairment or exceeding the cap on reversal.

    Fix: Never reverse a goodwill impairment. For other assets, the increased carrying amount must not exceed the lower of the recoverable amount (where applicable) and the depreciated carrying amount that would have existed had no loss been recognised.

  • Forgetting to gross up goodwill when non-controlling interest is at proportionate share.

    Fix: Add notional goodwill to the CGU carrying amount before testing. Allocate the loss first to goodwill, then attribute it to the parent and the NCI on the same basis as profit or loss is allocated. Recognise only the parent's share of the goodwill impairment, because the notional NCI goodwill is not recorded in the books.

  • Computing impairment on a revalued asset as a plain profit or loss charge.

    Fix: Treat the loss as a revaluation decrease and charge it to other comprehensive income up to the revaluation surplus, with only the excess going to profit or loss.

Last-day revision: Ind AS 36 Impairment of Assets

  • 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.

Ind AS 36 Impairment of Assets practice questions

Ind AS 36 Impairment of Assets in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Ind AS 36 Impairment of Assets: frequently asked questions

How often must an asset be tested for impairment under Ind AS 36?

At the end of each reporting period you assess whether any indication of impairment exists, and test the asset only if one does. Goodwill and intangible assets with indefinite lives, or not yet available for use, must be tested every year regardless of indicators.

Do I always need to calculate both fair value less costs of disposal and value in use?

No. If either amount is higher than the carrying amount, the asset is not impaired, so you need not calculate the other. Also, if FVLCD cannot be measured, you may use VIU as the recoverable amount.

Can impairment loss on goodwill be reversed?

No. Once goodwill is impaired, the loss is not reversed in a later period. For other assets, reversal is allowed when the estimates used to determine recoverable amount have changed, subject to a cap.

How do I attempt a CGU impairment question in the exam?

Show the carrying amount of the CGU, the recoverable amount and the loss. Then allocate the loss to goodwill first and the other assets pro rata, applying the floor for each asset. Present the working in a table-like list so each step earns marks.