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CA Final · Financial Reporting · Ind AS 38 Intangible Assets

Godavari Pharma Ltd. acquired a licence to a drug formulation and has determined its useful life to be indefinite. At each reporting date the finance team asks what Ind AS 38 and Ind AS 36 require. Which test is the right comparison for the impairment assessment?

The required test compares the asset's recoverable amount with its carrying amount. For an indefinite-life intangible such as Godavari's licence, this is done annually and whenever there is an indication of impairment, in accordance with Ind AS 36.

  1. AComparing the recoverable amount of the asset with its carrying amountCorrect
  2. BComparing the asset's original cost with its fair value at the previous year end
  3. CComparing the asset's carrying amount with its amortised cost over 10 years
  4. DComparing the asset's revenue for the year with its carrying amount

Explanation

Ind AS 38, in accordance with Ind AS 36, requires the impairment test to compare the recoverable amount with the carrying amount of the asset. The other options use bases such as original cost, an assumed 10-year amortisation or revenue, none of which is the required comparison.

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