IAS 36 impairment of assets explained

Impairment of assets matters most when times are hard: rising interest rates, falling demand or a failed acquisition can all force write-downs. This guide explains when IAS 36 requires a test, how recoverable amount is measured, how the loss is recognised and when it can be reversed.

By Awais Jameel, Chartered Accountant. Reviewed by Muhammad Bilal, Chartered Accountant. Checked against official sources on . 3 minute read.

Short answer

IAS 36 requires an asset to be carried at no more than its recoverable amount, the higher of its fair value less costs of disposal and its value in use. A company looks for impairment indicators at each reporting date and, if any exist, estimates the recoverable amount. If the carrying amount is higher, the difference is an impairment loss. Goodwill and indefinite-lived intangibles are tested at least annually, and impairment losses on assets other than goodwill are reversed if the estimates change.

At a glance

Carry assets at
No more than recoverable amount
Recoverable amount
Higher of FVLCD and value in use
Test when
Indicators exist; annually for goodwill
Level
Asset or cash-generating unit
Loss
Profit or loss, unless revalued
Excel
Impairment test model
IAS 36 impairment of assets explainedCarry assets at: No more than recoverable amount; Recoverable amount: Higher of FVLCD and value in use; Test when: Indicators exist; annually for goodwill; Level: Asset or cash-generating unit; Loss: Profit or loss, unless revalued; Excel: Impairment test model.KEY FACTS AT A GLANCEIAS 36 impairment of assets explainedCarry assets atNo more than recoverableamountRecoverable amountHigher of FVLCD and valuein useTest whenIndicators exist;annually for goodwillLevelAsset or cash-generatingunitLossProfit or loss, unlessrevaluedExcelImpairment test modelChecked against official sourcesTax BakersIAS 36 impairment of assets explainedCarry assets at: No more than recoverable amount; Recoverable amount: Higher of FVLCD and value in use; Test when: Indicators exist; annually for goodwill; Level: Asset or cash-generating unit; Loss: Profit or loss, unless revalued; Excel: Impairment test model.KEY FACTS AT A GLANCEIAS 36 impairment of assetsexplainedCarry assets atNo more than recoverable amountRecoverable amountHigher of FVLCD and value in useTest whenIndicators exist; annually for goodwillLevelAsset or cash-generating unitLossProfit or loss, unless revaluedExcelImpairment test modelChecked against official sourcesTax Bakers
Key facts at a glance, as set out in this guide.

How does an IAS 36 impairment test work?

The IAS 36 impairment testThe IAS 36 impairment test1Look forindicatorsEach reportingdate2EstimaterecoverableHigher of FVLCDand value in use3CompareWith thecarrying amount4Recogniseany lossGoodwill first,then other assets
Indicators trigger the test; the asset is written down to the higher of its two values.

What are impairment indicators?

ExternalInternal
A significant fall in the asset's market valueObsolescence or physical damage
Adverse changes in technology, markets, the economy or lawPlans to discontinue, restructure or dispose of the asset early
Higher market interest rates raising the discount ratePerformance worse than expected, such as cash flows below budget
Net assets above the company's market capitalisationA change from indefinite to finite useful life

Goodwill, indefinite-lived intangibles and intangibles not yet available for use are tested annually whether or not there is an indicator.

How is recoverable amount measured?

  • Fair value less costs of disposal (FVLCD): the price that would be received to sell the asset in an orderly transaction between market participants, measured under IFRS 13, less incremental disposal costs.
  • Value in use (VIU): the present value of the future cash flows expected from the asset in its current condition, discounted at a pre-tax rate. See how to calculate value in use.

Only one needs to be calculated if it already exceeds the carrying amount.

What is a cash-generating unit?

Most assets do not generate cash on their own, so they are tested as part of a cash-generating unit: the smallest identifiable group of assets that generates cash inflows largely independent of those from other assets. A shop in a chain, a factory selling to outside customers, or a regional network can each be a unit. Goodwill is allocated to the units or groups of units expected to benefit from the acquisition, monitored at no higher level than an operating segment. See cash-generating units and goodwill impairment testing.

A worked example

A telecom operator tests a network cash-generating unit with a carrying amount of 1,700 million, including 150 million of goodwill. Its value in use is 1,553 million and its fair value less costs of disposal 1,100 million, so the recoverable amount is 1,553 million and the impairment loss 147 million.

CU millionBeforeImpairmentAfter
Goodwill150(147)3
Network equipment1,100None1,100
Software, licences and other assets450None450
Total1,700(147)1,553

The loss is absorbed by goodwill first. Had it exceeded goodwill, the rest would have been spread over the other assets in proportion to their carrying amounts. The Impairment test model (Excel) runs this test and a sensitivity grid.

How is an impairment loss recognised?

In profit or loss, unless the asset is carried at a revalued amount, in which case it first reduces the revaluation surplus in OCI. Depreciation is then based on the reduced carrying amount over the remaining useful life.

Can an impairment loss be reversed?

Yes, for assets other than goodwill, if there has been a change in the estimates used to measure recoverable amount; see reversing an impairment loss. The reversal is limited to the carrying amount the asset would have had, net of depreciation, if no impairment had been recognised. Goodwill impairments are never reversed. US GAAP never reverses impairments of assets held and used; see IAS 36 vs US GAAP.

Which assets are outside IAS 36?

Inventories, contract assets, deferred tax assets, employee benefit assets, financial assets within IFRS 9, investment property at fair value, biological assets at fair value, and non-current assets held for sale. Each has its own measurement rules.

Need help applying the standards?

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Questions people ask

What is IAS 36?

The IFRS standard on impairment of assets, which requires assets to be carried at no more than their recoverable amount.

What is recoverable amount under IAS 36?

The higher of an asset's fair value less costs of disposal and its value in use.

How often must goodwill be tested for impairment?

At least annually, and whenever there is an indication of impairment.

Can impairment losses be reversed under IAS 36?

Yes, for assets other than goodwill, up to the carrying amount the asset would have had without the impairment.

Sources

Every fee, date and rule on this page was taken from these official and primary sources.

  1. IFRS Foundation: IAS 36 Impairment of Assets

Rules and fees change. If you are reading this long after October 4, 2026, confirm the figures with the source before you rely on them.

IAS 36Calculating value in useIFRS vs US GAAPIAS 36 vs ASC 350 and 360: impairment differencesIFRS vs US GAAPIAS 16 vs US GAAP: revaluation of property, plant and equipment

More in IAS 36

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This guide is general information. It is not tax or legal advice for your situation.