 Impairment is a fall in the market value of

an asset so that the recoverable amount

is now less than the carrying amount in
the statement of financial position.
 There is an established principle that
an asset shall not be carried at
above the recoverable amount.

 An entity shall write down the carrying

amount of an asset to the recoverable
amount if the carrying amount is not
 The asset shall therefore be reduced by
the amount of impairment loss.
 Three main accounting issues to
consider:
a. Indication of possible impairment
b. Measurement of the recoverable
amount
c. Recognition of impairment loss
 An entity shall assess at each reporting
date whether there is any indication
that an asset may be impaired.
 If any such indication exists, the entity
shall estimate the recoverable
amount of the asset.
 Entity shall test an intangible asset
with an indefinite useful life or an
intangible asset not yet available for
a. Significant decrease or decline in the
market value of the asset as a result of
passage of time or normal use or a new
competitor entering the market.
b. Significant change in the
technological, market, legal or
economic environment of the business
in which the asset is employed.
c. An increase in the interest rate or
market rate of return on investment
which will likely affect the discount rate
used in calculating the value in use.
d. The carrying amount of net assets of
the entity is more than the “market
capitalization.”
a. Evidence of obsolescence or physical damage
of an asset.

b. Significant change in the manner or extent

in which the asset is used with an adverse
effect on the entity.

c. Evidence that the economic performance of

The recoverable amount of an asset is
the fair value less cost of disposal or value
in use, whichever is higher.
 Fair value of an asset is the price that
would be received to sell the asset in an
orderly transaction between market
participants at the measurement date.
 Cost of disposal is an incremental cost
directly attributable to the disposal of an
asset or cash generating unit, excluding
 Examples of cost of disposal:
 legal cost
 stamp duty and similar transaction tax
 cost of removing the asset
 direct cost in bringing the asset into the condition for
sale
 Fair value less cost of disposal
 exit price or selling price of an asset minus cost
of disposal
 Best evidence of fair value:
1. LEVEL 1 INPUTS are the quoted prices in an
active market for identical assets.
2. LEVEL 2 INPUTS are inputs that are observable
either directly or indirectly
 include quoted prices for similar assets in an
active market and quoted prices for identical
or similar assets in a market that is not
3. LEVEL 3 INPUTS are
unobservable inputs for the asset.
 usually developed by the entity using
the best available information from
the entity’s own data
 An active market is a market in which
transactions for the asset take place with
sufficient regularity and volume to
provide pricing information on an
ongoing basis.

 A principal market is the market with the

 The market participants are the buyers
and sellers in the principal market who
are:
a. Independent or unrelated parties
b. Knowledgeable or having a reasonable
understanding of the transaction
c. Willing or motivated but not forced and
 Value in use is measured as the present
value or discounted value of future net
cash flows (inflows minus outflows)
expected to be derived from an asset.

 The cash flows are pretax cash flows and

pretax discount rate is applied in
a. Cash flow projections shall be based on
reasonable and supportable assumptions.
b. Cash flow projections shall be based on the most
recent budgets on financial forecasts, usually up to
a maximum period of 5 years, unless a longer
period can be justified.
c. Cash flow projections beyond the 5-year period
shall be estimated by extrapolating the 50year
projections using a steady or declining growth
 include:
a. Projections of cash inflows from the
continuing use of the asset.
b. Projections of cash outflows necessarily
incurred to generate the cash inflows
from the continuing use of the asset.
c. Net cash flows received on the disposal
 do not include:
a. Future cash flows relating to
restructuring to which the entity is not
yet committed.
b. Future costs of improving the asset’s
performance
c. Cash inflows and outflows from
 Current pretax rate that reflects the
current assessment of the time value
of money and the risk of the specific
asset.

 Should not reflect risks for which

 Impairment loss shall be
recognized immediately by
reducing the asset’s carrying
amount to its recoverable amount
 Recognized in PROFIT OR LOSS
and presented separately in
 PAS 36, paragraph 114
 Impairment loss recognized
for an asset in prior years shall
be reversed if there has been a
change in the estimate of the
 PAS 36, paragraph 117

- provides that the increased in carrying

amount of an asset due to reversal of an
impairment loss shall not exceed the
carrying amount that would have been
determined, had no impairment loss been
recognized for the asset for the prior
The reversal of the impairment loss
shall be recognized immediately
as income in the income
statement.