Ind AS 36 Impairment explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Ind AS 36 ensures that assets are carried at no more than their recoverable amount — the higher of fair value less costs of disposal and value in use. It prescribes when to test for impairment, how to identify cash-generating units, how to allocate and test goodwill, and when an impairment loss may be reversed.
Overview
Ind AS 36, notified under the Companies (Ind AS) Rules, 2015, exists to prevent overstatement of assets. If the carrying amount of an asset exceeds the amount recoverable through use or sale, the excess is an impairment loss that must be written off. The standard applies a consistent recoverable-amount model across property, plant and equipment, intangibles, goodwill and investments in subsidiaries, associates and joint ventures.
Scope
Ind AS 36 covers most non-financial assets but specifically excludes inventories (Ind AS 2), contract assets and deferred tax assets, assets from employee benefits, financial assets within Ind AS 109, investment property at fair value, biological assets at fair value less costs to sell (Ind AS 41), and non-current assets held for sale (Ind AS 105) — each of which has its own measurement rules.
Indicators and Timing of the Test
At each reporting date the entity checks for external indicators (market value decline, adverse changes in technology, markets, economy or law; increases in interest rates) and internal indicators (obsolescence, physical damage, plans to discontinue, worse-than-expected performance). Where any indicator exists, recoverable amount is estimated. Regardless of indicators, goodwill, indefinite-life intangibles, and intangibles not yet available for use are tested for impairment at least annually.
Recoverable Amount
Recoverable amount is the higher of:
- Fair value less costs of disposal — the price obtainable in an orderly transaction, net of direct selling costs.
- Value in use — the present value of estimated future cash flows from continuing use and eventual disposal, discounted at a pre-tax rate reflecting current market assessments of the time value of money and asset-specific risks.
Cash-Generating Units and Goodwill
Where an asset does not generate independent cash inflows, it is tested as part of the smallest cash-generating unit (CGU) to which it belongs. Goodwill acquired in a business combination is allocated to the CGUs expected to benefit from the synergies and tested at that level. An impairment loss on a CGU is applied first to reduce goodwill, then to the other assets of the unit pro rata to their carrying amounts — but no asset is reduced below the highest of its own fair value less costs of disposal, value in use, or zero.
Worked Example
A machine has a carrying amount of ₹80,00,000. Following a market downturn, its fair value less costs of disposal is ₹55,00,000 and its value in use — the discounted cash flows it can still generate — is ₹62,00,000. Recoverable amount is the higher figure, ₹62,00,000. The impairment loss is ₹80,00,000 − ₹62,00,000 = ₹18,00,000, charged to profit or loss. Future depreciation is then based on the revised carrying amount of ₹62,00,000 over the remaining useful life.
Reversal of Impairment
If, in a later period, the recoverable amount increases because the estimates used to measure it have changed, the impairment loss is reversed — but only up to the carrying amount that would have been determined (net of depreciation) had no impairment been recognised. The reversal is credited to profit or loss. Critically, an impairment loss recognised for goodwill is never reversed, since any subsequent increase is treated as internally generated goodwill.
Key Differences from AS 28
Ind AS 36 mandates annual testing of goodwill and indefinite-life intangibles (AS 28 relied on triggering events), introduces detailed CGU and goodwill-allocation mechanics, and requires extensive disclosure of the key assumptions, growth rates and discount rates in value-in-use models — enabling users to assess the sensitivity of the impairment conclusion.