Accounting write-down required when an asset or asset group's carrying amount is not recoverable under the applicable measurement model.
Impairment is an accounting write-down required when an asset or asset group’s carrying amount is not supported by the recoverable value defined in the applicable accounting model. It prevents an asset from remaining recorded above the amount the reporting framework permits the entity to recover through use, sale, collection, or another specified basis.
There is no single impairment test for every asset. Inventory, financial instruments, goodwill, property and equipment, and assets held for sale follow different standards and calculations.
For assets within IAS 36, an impairment exists when carrying amount exceeds recoverable amount:
Recoverable amount is the higher of:
Value in use reflects discounted cash flows from the asset in its current condition and eventual disposal. Fair value less costs of disposal reflects a market-participant sale measurement after direct disposal costs.
If an individual asset does not generate largely independent cash inflows, it is tested within the smallest cash-generating unit for which those inflows can be identified.
Assume equipment has:
Recoverable amount is the higher value, $560,000:
After recognizing the loss, the equipment’s carrying amount is $560,000. Future depreciation is recalculated using that revised amount, less any residual value, over the remaining useful life.
The result would differ if another standard applied or if the asset were tested as part of a larger cash-generating unit.
| Asset or balance | Typical IFRS model | Core comparison |
|---|---|---|
| Property, plant, equipment, and many intangible assets | IAS 36 | Carrying amount vs recoverable amount |
| Goodwill | IAS 36 at CGU or group-of-CGUs level | Unit carrying amount vs recoverable amount |
| Inventory | IAS 2 | Cost vs net realizable value |
| Financial assets at amortized cost or FVOCI | IFRS 9 | Expected credit-loss model |
| Investment property measured at fair value | IAS 40 and IFRS 13 | Fair-value changes under that model rather than IAS 36 |
| Non-current asset held for sale | IFRS 5 | Carrying amount vs fair value less costs to sell |
Calling every reduction an impairment can hide the actual measurement basis. An inventory write-down to net realizable value and a loan’s expected credit loss are economically related to recoverability but do not use the IAS 36 calculation.
At each reporting date, an entity assesses whether indicators suggest that an IAS 36 asset may be impaired. Indicators can include:
Goodwill, indefinite-life intangible assets, and intangible assets not yet available for use have annual testing requirements even without an indicator. Other assets within IAS 36 are generally tested when indicators exist.
| Feature | IFRS IAS 36 | U.S. GAAP long-lived asset model |
|---|---|---|
| Unit tested | Individual asset or cash-generating unit | Asset group |
| Initial recoverability test | Direct comparison with recoverable amount | Carrying amount first compared with undiscounted cash flows |
| Loss measurement | Carrying amount less recoverable amount | If unrecoverable, carrying amount less fair value |
| Reversal when value recovers | Permitted for qualifying non-goodwill assets, subject to a ceiling | Generally prohibited for assets held and used after a recognized loss |
| Goodwill | Separate CGU rules | Separate reporting-unit rules |
Because the U.S. recoverability screen uses undiscounted cash flows while IAS 36 value in use is discounted, recognition timing can differ. Framework labels must remain explicit in cross-company comparisons.
| Concept | Purpose | Pattern |
|---|---|---|
| Depreciation or amortization | Allocate depreciable amount over useful life | Systematic recurring expense based on method and estimate |
| Impairment | Correct an unsupported carrying amount | Event- or test-driven write-down |
| Revaluation | Apply an elected or required current-value model where permitted | Can produce increases or decreases under specific standards |
| Write-down | General description of a carrying-amount reduction | Accounting model must be identified |
Normal depreciation does not replace an impairment review. Conversely, a fall in market price does not automatically require impairment if the applicable test still supports the carrying amount.
For qualifying assets other than goodwill, IAS 36 requires an entity to assess whether a prior impairment may have decreased. A reversal is limited so the asset does not exceed the carrying amount it would have had, net of depreciation or amortization, if no impairment had been recognized.
Goodwill impairment is never reversed under IAS 36. The prohibition avoids recognizing internally generated goodwill after the original acquired goodwill has been written down.
An impairment loss generally reduces assets and current-period earnings. It can also:
The recognized loss is often non-cash in the period, but the impaired asset may have required earlier capital expenditure or acquisition consideration. Analysts should connect the charge to the original investment and to revised cash-flow expectations.
Impairment conclusions require asset-specific standards, forecasts, valuation evidence, and professional judgment. This page is educational and does not provide accounting, audit, tax, legal, valuation, or investment advice.