IAS 36 (International Accounting Standard No. 36) focuses on asset impairment. This standard establishes the procedures that companies must apply to ensure that their assets are carried at an amount that does not exceed their recoverable amount. In other words, when the carrying amount of an asset exceeds its recoverable amount, the company must recognize an impairment loss. This standard helps to ensure accurate and consistent accounting for a company’s assets.
• The carrying amount of the asset is compared to its recoverable amount.
• If the carrying amount is greater than the recoverable amount, the asset is considered impaired, and an impairment loss should be recognized.
Can be calculated in two ways:
• Fair value less costs of disposal: The value that would be obtained by selling the asset in the market.
• Value in use: The present value of future cash flows expected to be generated with the asset.
• Impairment is assessed at the CGU level.
• If there is any indication of impairment, the recoverability test is performed to determine whether an impairment loss should be recognized.
In summary, IAS 36 seeks to ensure that assets are properly valued and that impairment losses are recognized in the financial statements.
