Advanced Accounting · AS 28 Impairment of Assets

AS 28 Impairment of Assets: Scope, Objective and Key Definitions

Updated 4 October 2026 · Fact-checked

AS 28 ensures an enterprise does not carry an asset above its recoverable amount. If carrying amount exceeds recoverable amount (the higher of net selling price and value in use), the excess is an impairment loss. It goes to the statement of profit and loss, except for a revalued asset, where it is first set against the revaluation surplus.

Understand AS 28 Scope, Objective and Key Definitions

Think of a machine in your books at ₹10,00,000. If the machine can only earn or fetch ₹7,00,000, showing it at ₹10,00,000 overstates assets and profit. AS 28 stops this. It requires you to carry an asset at no more than the amount you can recover from it.

The objective of AS 28 is to prescribe the procedures an enterprise applies so that its assets are not carried at more than their recoverable amount. If an asset's carrying amount is more than the amount to be recovered through use or sale, the asset is described as impaired, and the standard requires the enterprise to recognise an impairment loss. The standard also says when an impairment loss may be reversed and what must be disclosed.

The scope is wide but not unlimited. AS 28 applies to all assets except inventories, assets arising from construction contracts, financial assets including investments covered by AS 13, and deferred tax assets. The related standards are AS 2 for inventories, AS 7 for construction contracts, AS 13 for investments and AS 22 for deferred tax. Assets under AS 28 include land, buildings, plant, machinery, intangible assets, goodwill and assets under finance lease. Check the exclusion list carefully, because exam questions often include an inventory or investment to test you.

Now the key terms. Carrying amount is the amount at which an asset is shown after deducting accumulated depreciation (amortisation) and accumulated impairment losses. Recoverable amount is the higher of an asset's net selling price and its value in use. Net selling price is the amount obtainable from sale in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal. Value in use is the present value of estimated future cash flows expected from continuing use of the asset and from its disposal at the end of its useful life.

An impairment loss is the amount by which the carrying amount exceeds the recoverable amount. It is recognised in the statement of profit and loss, except for a revalued asset, where it is first set against the revaluation surplus and only the excess goes to profit and loss. A cash generating unit (CGU) is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows from other assets or groups of assets. When one asset does not generate independent cash flows, you test the CGU it belongs to.

Key rules to remember

Recoverable amount: Recoverable amount = Higher of (Net selling price, Value in use); Take the higher figure because the enterprise will choose the better route, sale or use.
Net selling price: Net selling price = Selling price in arm's length sale − Costs of disposal; Costs of disposal are incremental costs such as legal costs and stamp duty. Finance costs and income tax expense are not counted.
Value in use: Value in use = Σ [Estimated future cash flow ÷ (1 + r)^n] including net disposal proceeds at the end of life; r is the discount rate, a pre-tax rate reflecting current market assessments of time value of money and risks specific to the asset.
Carrying amount: Carrying amount = Cost (or revalued amount) − Accumulated depreciation − Accumulated impairment losses; Always compare recoverable amount with the carrying amount after charging depreciation up to the date of testing.
Impairment loss: Impairment loss = Carrying amount − Recoverable amount (only if carrying amount is higher); If recoverable amount is equal or higher, there is no impairment loss and no entry.

How to solve AS 28 Scope, Objective and Key Definitions questions

Use this order for any question on scope, definitions or a basic impairment computation.

1Check scope first: is the asset one that AS 28 excludes, such as inventory, construction contract assets, financial assets including investments, or deferred tax assets? If yes, say AS 28 does not apply.
2Find the carrying amount: cost less accumulated depreciation less earlier impairment losses, up to the testing date.
3Find net selling price: sale price less costs of disposal. If no sale price is given, say it cannot be measured and use value in use.
4Find value in use: discount the future cash flows and add the discounted net disposal proceeds at the end of life.
5Take the higher of net selling price and value in use as the recoverable amount.
6Compare: if carrying amount is more than recoverable amount, the difference is the impairment loss. Otherwise state that there is no impairment.
7Recognise the loss in the statement of profit and loss. For a revalued asset, the impairment loss is treated as a revaluation decrease, i.e. charged against the revaluation surplus to the extent available, and any excess goes to the statement of profit and loss.
8Where the asset does not generate independent cash flows, repeat the steps for the cash generating unit.

Quickest way: Three-number comparison

When to use it: For MCQs and short written parts where figures are given and you must state the loss or the recoverable amount.

Write three numbers in a row: carrying amount, net selling price, value in use.
Pick the higher of the last two. That is the recoverable amount.
Subtract it from the carrying amount. If negative or zero, answer nil loss.
In MCQs, eliminate options that use the lower of the two values or that ignore costs of disposal.
In written answers, state the rule in one line, show the computation in a neat table-style list, and end with the journal entry: Impairment Loss A/c Dr. to Asset A/c. Each of these earns step marks.

Common mistakes in AS 28 Scope, Objective and Key Definitions

Taking the lower of net selling price and value in use as recoverable amount.
Students link impairment with prudence and assume the lower figure is safer.
Fix: Recoverable amount is always the higher of the two, because the enterprise can choose the better option.
Not deducting costs of disposal from selling price.
The question gives a market price and students use it directly.
Fix: Always check for disposal costs and deduct them to get net selling price.
Applying AS 28 to inventories or investments covered by other standards.
Students read AS 28 as covering every asset without exclusions.
Fix: Memorise the main exclusions: inventories (AS 2), construction contract assets (AS 7), deferred tax assets (AS 22) and financial assets/investments within AS 13. Inventories go to AS 2 and so on.
Testing carrying amount before charging the current year's depreciation.
Students jump to the impairment test and forget the timeline.
Fix: Charge depreciation up to the testing date first, then compare the resulting carrying amount with recoverable amount.
Testing a single asset when it belongs to a cash generating unit.
Students forget that some assets produce no independent cash inflows.
Fix: If an asset's recoverable amount cannot be determined individually, determine it for the smallest CGU to which it belongs.
Treating the impairment loss as the difference between cost and recoverable amount.
Students ignore accumulated depreciation.
Fix: Use carrying amount, which is cost less accumulated depreciation, as the starting figure.

Worked examples

Example 1

A machine was bought for ₹20,00,000 and has accumulated depreciation of ₹8,00,000 at the balance sheet date. Its selling price in an arm's length sale would be ₹10,50,000, with disposal costs of ₹50,000. Its value in use is ₹9,20,000. Compute the impairment loss.

Show the solution

Carrying amount = ₹20,00,000 − ₹8,00,000 = ₹12,00,000.
Net selling price = ₹10,50,000 − ₹50,000 = ₹10,00,000.
Value in use = ₹9,20,000.
Recoverable amount = higher of ₹10,00,000 and ₹9,20,000 = ₹10,00,000.
Carrying amount ₹12,00,000 is more than recoverable amount ₹10,00,000, so the asset is impaired.
Impairment loss = ₹12,00,000 − ₹10,00,000 = ₹2,00,000.
Entry: Impairment Loss A/c Dr. ₹2,00,000 to Machine A/c ₹2,00,000.

Answer: Impairment loss is ₹2,00,000. The machine is carried at cost less depreciation and has not been revalued, so the loss is charged to the statement of profit and loss. (For a revalued asset it would first be set against the revaluation surplus.)

Example 2

State whether AS 28 applies and, if it does, compute any impairment loss. (a) Closing inventory of ₹5,00,000 with net realisable value of ₹4,20,000. (b) A building with carrying amount ₹30,00,000, net selling price ₹28,00,000 and value in use ₹32,00,000.

Show the solution

(a) Inventories are excluded from the scope of AS 28. They are valued under AS 2 at the lower of cost and net realisable value.
So for (a) the write-down is ₹5,00,000 − ₹4,20,000 = ₹80,000, but under AS 2, not AS 28.
(b) A building is within the scope of AS 28.
Recoverable amount = higher of ₹28,00,000 and ₹32,00,000 = ₹32,00,000.
Carrying amount ₹30,00,000 is less than recoverable amount ₹32,00,000, so there is no impairment loss.
No entry is made. The building continues at ₹30,00,000 and AS 28 does not allow upward adjustment because of the higher value in use.

Answer: (a) AS 28 does not apply; the ₹80,000 write-down arises under AS 2. (b) AS 28 applies, recoverable amount is ₹32,00,000 and the impairment loss is nil.

Exam tips

Learn the definitions word for word in your own short form. Theory questions often ask you to define recoverable amount, value in use or CGU for a few marks.
In numerical questions, show carrying amount, net selling price, value in use and recoverable amount as separate lines. Each line can earn a step mark even if the final figure goes wrong.
Look for traps: an inventory or investment in the question, disposal costs, or accumulated depreciation not yet deducted.
For MCQs, remember that recoverable amount is the higher figure and impairment loss can never be negative. There is no negative marking, so always attempt every MCQ.
Write the journal entry for the loss even if the question only asks for the amount.

Practice questions from AS 28 Impairment of Assets

AS 28 Scope, Objective and Key Definitions 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 Scope, Objective and Key Definitions: frequently asked questions

What is recoverable amount in AS 28?

Recoverable amount is the higher of an asset's net selling price and its value in use. It is the benchmark against which carrying amount is compared. If carrying amount is higher, you recognise an impairment loss.

What is the difference between value in use and net selling price?

Net selling price is what you would get by selling the asset in an arm's length deal, less costs of disposal. Value in use is the present value of the future cash flows from using the asset and disposing of it at the end of its life. One is a sale view and the other is a use view.

Which assets are outside the scope of AS 28?

AS 28 applies to all assets except inventories (AS 2), assets arising from construction contracts (AS 7), financial assets including investments covered by AS 13, and deferred tax assets (AS 22). Each excluded asset is dealt with under its own standard.

What is a cash generating unit?

It is the smallest identifiable group of assets that generates cash inflows from continuing use that are largely independent of the inflows from other assets or groups. You test the unit when a single asset does not generate independent cash flows.