IFRS Essentials

IAS 36 IMPAIRMENT OF ASSETS

1 INTRODUCTION AND SCOPE OF IAS 36

IAS 36 contains rules with regard to the impairment and the reversal of impairment losses of specific assets. For the purpose of consolidated financial statements, the scope of IAS 36 mainly comprises items of property, plant, and equipment (IAS 16), intangible assets including any goodwill resulting from a business combination (IAS 38 and IFRS 3), and investment property measured according to the cost model (IAS 40) (IAS 36.2–36.5). The rules of IAS 36 relating to the quantitative impairment test also apply to investments in associates and jointly controlled entities accounted for using the equity method. However, in these cases, a simplified calculation is possible (IAS 28.31–28.34, IAS 31.38, and 31.40).1

An impairment loss is recognized if the carrying amount of an asset (after deduction of depreciation or amortization for the period) exceeds its recoverable amount. The recoverable amount of an asset is the higher of its value in use (present value of the future cash flows expected to be derived by the entity from the asset) and its fair value less costs to sell (amount obtainable from the sale of an asset in an arm's length transaction between knowledgeable, willing parties, less the costs of disposal).

In practice, it is often not possible to determine the future cash inflows generated by an individual asset on a rational basis, which would be necessary for calculating its value in use. For example, entity E ...