What Is Impairment Under IAS 36?

Impairment under IAS 36 arises when the carrying amount of an asset is greater than its recoverable amount — in other words, the balance sheet says the asset is worth more than the business can actually recover from it. When that happens, the asset is written down to its recoverable amount and an impairment loss is recognised.

What is recoverable amount?

Recoverable amount is the higher of two figures:

• Fair value less costs of disposal — what you'd get from selling the asset, net of selling costs.
• Value in use — the present value of the future cash flows the asset is expected to generate.

You take the higher of the two because a rational business would choose whichever route recovers more.

When is an impairment review needed?

An entity assesses at each reporting date whether there are indicators of impairment (internal or external). Certain assets — goodwill and indefinite-life intangibles — must be tested at least annually regardless of indicators.

Cash-generating units and reversals

Where an individual asset's cash flows can't be identified, impairment is tested at the cash-generating-unit level. Impairment losses can be reversed if circumstances change — except goodwill impairment, which is never reversed.

Impairment is a regular ACCA FR and SBR topic, and the marks come from the recoverable-amount comparison and the correct write-down. Practising these questions and marking them against the official ACCA scheme with The 50% Club shows you exactly where your impairment logic slips.