Ias 36 Impairment of Assets

IAS 36 Impairment of Assets

1. Objective

* Ensure that an entity’s assets are not carried at more than their recoverable amounts.

* Entities are required to conduct impairment tests where there is an indication of impairment of an asset

* Certain intangible assets such as goodwill require annual impairment tests as well.

2. Scope

IAS 36 applies to all assets except: * Inventories * Assets arising from construction contracts * Deferred tax assets * Assets arising from employee benefits * Financial assets * Investment property carried at fair value * Agricultural assets carried at fair value * Insurance contract assets * Non-current assets held for sale | Therefore, IAS 36 applies to: * Land * Buildings and Machinery and equipment * Intangible assets * Goodwill * Investment property carried at cost * Investments in subsidiaries, associates, and joint ventures carried at cost * Assets carried at revalued amounts under IAS 16 and IAS 38 |

3. Definitions

* Impairment: an asset is impaired when its carrying amount exceeds its recoverable amount

* Carrying amount: the amount at which an asset is recognized in the balance sheet after deducting accumulated depreciation and accumulated impairment loss

* Recoverable amount: the higher of an asset’s fair value less costs of disposal and its value in use

* Fair value: the amount obtainable from the sale of an asset in an arm’s length transaction between knowledgeable, willing parties

* Value in use: the discounted present value of the future cash flows expected to arise from: the continuing use of an asset, and from its disposal at the end of its useful life

4. Identifying an impaired asset

* Review all assets at the end of each balance sheet date to look for impairment.

(i.e. its carrying amount may be in excess of the greater of its net selling price and its value in use).

* The following intangible assets should be measured...