IAS 36 ‘Impairment of Assets’ seeks to ensure that the assets of a
reporting entity are carried at amounts not in excess of their recoverable
IAS 36 defines the recoverable amount of an asset as the higher of its fair
value less costs of disposal (FVLCD) to sell and its value in use (VIU). Fair
value is defined as an amount obtainable in an arm’s length transaction
between knowledgeable and willing parties. VIU is based on an estimate
of the future cash flows the entity expects to derive from the use of an
asset or associated cash generating unit (CGU) in its current form.
COVID-19 is likely to impact both FVLCD and VIU.
If the carrying amount of an asset exceeds its recoverable amount the
asset is impaired.
IAS 36 then requires the entity to write down the asset to its recoverable
amount and recognise an impairment loss. IAS 36 requires that both
intangible assets with an indefinite useful life (and any intangibles not
yet ready for their intended use) and goodwill be tested for impairment
at least annually. For other asset classes that fall under the standard,
the entity is required to test the asset for impairment when indicators of
impairment are present.
Our publication addresses issues for management to consider in assessing
impairment together with some direction as to how best to respond to
Contact our team to discuss this update further.