IAS 36 Impairment of Assets

An impairment is the reduction in the recoverable amount of a non current asset below its carrying amount (net book value)

Recoverable amount: is the higher of the fair value less costs to sell and value in use.

Fair value less costs to sell: is the amount at which an asset could be disposed of, less any direct selling costs.

Value in use: is the total future cash flows (discounted to present value) arising from an assets continued use, including those resulting from its ultimate disposal.

Every financial period an entity must assess whether there is any indication that an asset may be impaired. Regardless of indication they must also...

 - test intangible assets with an indefinate useful life for impairment

 - test goodwill aquired for impairment annually

Examples of indicators of impairments are as follows...

• External - a significant decline in the market value of a non current asset
• External - an adverse change in the market in which the business operates
• External - changes in the economic environment
• External - changes in the legal system
• Internal - evidence of physical damage
• Internal - a period of operating loss or net outflow from operating activites 
• Internel - a major loss of key employees
• Internal - a management commitment for reorganisation

Impairment losses need to be recognised in the statement of profit and loss, unless they arise on a previously revalued asset. Impariment losses on revalued assets are recognised in the revaluations reserve which is part of the statement of changes in equity.

After the impairment loss is recognised the amortisation or depreciation charge for the asset shall be adjusted to allocate the assets revised carrying amount over it's remaining useful life.

An entity must then disclose the amount of the impairment losses recognised in the period and the line item of the statement of profit or loss in which those impairment losses are included.