Ind AS 36, Impairment of Assets, provides guidelines for assessing and recognizing impairment losses on assets. The standard applies to all assets, except for certain financial assets and assets covered by other Ind AS standards.
Under Ind AS 36, entities are required to test their assets for impairment whenever there is an indication of potential impairment. Impairment is considered to have occurred if the carrying amount of an asset exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use.
The standard sets out a two-step impairment testing process. In the first step, entities compare the carrying amount of the asset to its recoverable amount. If the recoverable amount is higher, no impairment loss is recognized. However, if the carrying amount exceeds the recoverable amount, the entity proceeds to the second step.
In the second step, entities calculate the impairment loss as the difference between the carrying amount of the asset and its fair value less costs of disposal. The impairment loss is recognized in the income statement unless the asset is carried at revalued amount, in which case the loss is recognized in other comprehensive income.
Ind AS 36 also requires entities to regularly assess whether there is any indication that a previously recognized impairment loss needs to be reversed or reduced. If the circumstances that led to the impairment no longer exist or have improved, the impairment loss is reversed up to the amount that the asset’s carrying amount would have been if no impairment loss had been recognized initially.
