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IAS 36 Impairment testing: practical issues Contents Introduction Executive summary Testing for impairment at the end of each reporting period A special impairment indicator: market capitalisation.

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Impairment testing is the process of reviewing the values of assets shown in the balance sheet of a company (known as the 'carrying amount') to determine whether those values continue to be supportable or should be reduced.

An impairment charge is a process used by businesses to write off worthless goodwill. These are assets whose value drops or is lost completely, rendering them completely worthless. Investors, creditors, and others can find these charges on corporate income statements under the operating expense section.

In accounting, impairment is a permanent reduction in the value of a company asset. It may be a fixed asset or an intangible asset. When testing an asset for impairment, the total profit, cash flow, or other benefits that can be generated by the asset is periodically compared with its current book value.

The core principle in IAS 36 is that an asset must not be carried in the financial statements at more than the highest amount to be recovered through its use or sale. If the carrying amount exceeds the recoverable amount, the asset is described as impaired.

IAS 36 defines corporate assets as being assets, other than goodwill, that contribute to the future cash flows of more than one CGU. Examples include assets such as a headquarters building, electronic data processing (EDP) equipment or a research centre.

Asset impairment helps a company to evaluate its assets periodically and ensures it doesn't overstate the total value of its assets. It's essential to check asset values periodically because many factors can affect an asset's value, resulting in a lower market value than the book value.

Disadvantages of Impairment It is generally difficult to know the measurement value that must be used to ascertain the impairment amount. A few of the popular ways of measuring impairment include finding out the current market value, current cost, NRV, or the sum of future net cash flows from the income-producing unit.

The fair value of an item is an exit price, and volatility in many market prices has made fair value incredibly difficult to assess. The calculation of fair values is likely to be possible, but experts may use a slightly wider range of fair values rather than providing a set figure in many cases.

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© Copyright 1997-2025
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Form Packages
Adoption
Bankruptcy
Contractors
Divorce
Home Sales
Employment
Identity Theft
Incorporation
Landlord Tenant
Living Trust
Name Change
Personal Planning
Small Business
Wills & Estates
Packages A-Z
Form Categories
Affidavits
Bankruptcy
Bill of Sale
Corporate - LLC
Divorce
Employment
Identity Theft
Internet Technology
Landlord Tenant
Living Wills
Name Change
Power of Attorney
Real Estate
Small Estates
Wills
All Forms
Forms A-Z
Form Library
Customer Service
Terms of Service
DMCA Policy
About Us
Blog
Affiliates
Contact Us
Privacy Notice
Delete My Account
Site Map
All Forms
Search all Forms
Industries
Forms in Spanish
Localized Forms
Legal Guides
Real Estate Handbook
All Guides
Prepared for You
Notarize
Incorporation services
Our Customers
For Consumers
For Small Business
For Attorneys
Our Sites
US Legal Forms
USLegal
FormsPass
pdfFiller
signNow
airSlate workflows
DocHub
Instapage
Social Media
Call us now toll free:
1-877-389-0141
As seen in:
  • USA Today logo picture
  • CBC News logo picture
  • LA Times logo picture
  • The Washington Post logo picture
  • AP logo picture
  • Forbes logo picture
© Copyright 1997-2025
airSlate Legal Forms, Inc.
3720 Flowood Dr, Flowood, Mississippi 39232