CA Intermediate · Advanced Accounting

AS 28 Impairment of Assets: CA Intermediate Chapter Guide

AS 28 makes sure an asset is not carried above what you can recover from it. If carrying amount exceeds recoverable amount (the higher of net selling price and value in use), you book an impairment loss. Solve by finding indications, computing both amounts, comparing, then allocating the loss.

What this chapter covers

AS 28 Impairment of Assets sets one rule: an asset must not be shown in the balance sheet at more than its recoverable amount. Recoverable amount is the higher of net selling price and value in use. If the carrying amount is higher, the asset is impaired and the excess is charged as an impairment loss.

The chapter moves in a clear line. First you learn the scope and definitions. Then you check whether there are indications of impairment. Next you measure recoverable amount, mainly by discounting future cash flows for value in use. Then you recognise the loss, deal with cash generating units (CGUs), corporate assets and goodwill, and finally learn when a loss can be reversed and what must be disclosed.

This chapter connects closely with depreciation, fixed assets (AS 10) and revaluation, because impairment on a revalued asset is treated differently from impairment on a cost-model asset. It also links to the Schedule III presentation and to the financial statements questions in the paper. Numerical questions often combine AS 28 with depreciation or with a business combination, so you need clean basics.

AS 28 is a compact chapter with a predictable question pattern: a short theory point, or a numerical on value in use and loss allocation across a CGU. The calculations are mechanical once you know the steps, so it is a good place to earn full marks with limited effort. Questions can come as 1 or 2 mark MCQs on definitions and reversal rules, or as a written problem where step marks reward a neat working of recoverable amount, loss and revised depreciation.

AS 28 Impairment of Assets: topics in the order to study them

1AS 28 Scope, Objective and Key DefinitionsEvery later topic uses terms like carrying amount, recoverable amount and impairment loss, so fix these first.
2Identifying an Impaired Asset and Indications of ImpairmentYou must know when to test an asset before you learn how to measure it.
3Measuring Recoverable Amount: Net Selling Price and Value in UseThis is the core calculation and the base for every numerical in the chapter.
4Recognition and Measurement of Impairment LossOnce you can find recoverable amount, you learn how the loss is booked, including the revalued asset case and revised depreciation.
5Cash Generating Units, Corporate Assets and GoodwillThis extends the single asset method to groups of assets and is harder, so it comes after the basics are solid.
6Reversal of Impairment Loss and DisclosuresReversal rules mirror recognition rules, so they are easiest to learn last, along with the disclosure points.

How to prepare AS 28 Impairment of Assets

Aim to learn the logic once and then practise a few numericals until the steps feel automatic. Keep the sequence fixed every time you solve.

Read the definitions and write them in your own words: carrying amount, recoverable amount, net selling price, value in use, impairment loss.
Memorise the indications of impairment as two lists, external and internal, with one example each so you can recall them in MCQs.
Practise value in use: list cash flows year by year, apply the discount factor, add the discounted terminal or disposal value, then total.
Solve every problem in the same order: carrying amount, net selling price, value in use, recoverable amount, loss. Show each line for step marks.
Practise CGU questions: compute the loss for the unit, allocate first to goodwill, then pro rata to other assets on carrying amount, and do not reduce any asset below the highest of its net selling price (if determinable), its value in use (if determinable) and zero.
Revise reversal rules and the revalued asset treatment with one short example each, then attempt MCQs on definitions, reversal and disclosure.
Before the exam, redo two mixed problems from memory and check your depreciation after impairment.

Common mistakes in AS 28 Impairment of Assets

Taking the lower of net selling price and value in use as recoverable amount.
Fix: Remember that recoverable amount is the higher figure, because a business would use or sell the asset in the way that gives more.
Including financing cash flows, tax payments or future expansion in value in use.
Fix: Use only cash flows from the asset in its current condition, and leave out financing and income tax items and future enhancement.
Charging an impairment loss on a revalued asset directly to profit and loss.
Fix: Treat it as a revaluation decrease first, set against the revaluation surplus, and charge only the balance to profit and loss.
Allocating a CGU loss pro rata to all assets including goodwill.
Fix: Reduce goodwill first, then allocate the rest pro rata to other assets, and do not reduce any asset below the highest of its net selling price (if determinable), its value in use (if determinable) and zero.
Forgetting to revise depreciation after an impairment loss or reversal.
Fix: Add a last line to every answer: new carrying amount divided by remaining useful life gives the revised depreciation.
Reversing a loss to an amount above what the carrying amount would have been without the loss.
Fix: Compute the carrying amount as if no loss had been booked, after normal depreciation, and reverse only up to that figure.

Last-day revision: AS 28 Impairment of Assets

Impairment loss = carrying amount − recoverable amount, when carrying amount is higher.
Recoverable amount = higher of net selling price and value in use.
Net selling price = selling price less costs of disposal.
Value in use = present value of estimated future cash flows from continuing use and final disposal.
If either net selling price or value in use exceeds carrying amount, there is no impairment and the other need not be measured.
Impairment loss on a cost-model asset goes to the statement of profit and loss.
Impairment loss on a revalued asset is first set off against the revaluation surplus for that asset, and any excess goes to profit and loss.
After impairment, depreciation is revised over the remaining useful life using the new carrying amount.
In a CGU, allocate the loss first to goodwill, then to other assets pro rata on carrying amount.
Reversal is allowed only if estimates used to find recoverable amount have changed, and the reversed carrying amount cannot exceed what it would have been without the earlier loss, net of depreciation.
Impairment loss on goodwill is not reversed in a later period, in line with AS 28.
Disclose the loss recognised, the reversal, and the class of assets and segment affected.

AS 28 Impairment of Assets practice questions

AS 28 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.

AS 28 Impairment of Assets: frequently asked questions

Is AS 28 a theory or numerical chapter?

It is both. Definitions, indications and reversal rules suit MCQs and short theory answers, while value in use and CGU loss allocation are the usual written numericals. Prepare both sides.

Do I need to measure both net selling price and value in use every time?

No. If either one is higher than the carrying amount, the asset is not impaired and you need not measure the other. If the question gives both, compute both and take the higher.

How is impairment different from depreciation?

Depreciation spreads the cost of an asset over its useful life in a planned way. Impairment is a one-time write-down when the asset's recoverable amount falls below its carrying amount. After impairment, depreciation is revised on the new carrying amount.

Can an impairment loss always be reversed?

No. It can be reversed only when the estimates used to determine recoverable amount have changed, and only up to the limit set by what the carrying amount would have been without the loss. An impairment loss on goodwill is not reversed.