Store impairment testing

Retailers with large store estates test dozens or hundreds of stores for impairment each year, and IFRS 16 made the tests larger by putting leases into the carrying amounts. This guide explains how stores are tested, works through a loss-making store, and covers the hard questions: online sales, central costs and reversals.

By Hamza Fida, Chartered Accountant. Reviewed by Mirza Fahad Baig, Chartered Accountant. 3 minute read.

Short answer

Store impairment testing under IAS 36 usually treats each store as a cash-generating unit, because it generates largely independent cash inflows. When a store shows indicators of impairment, such as losses or a planned closure, the retailer compares the carrying amount of its right-of-use asset, fixtures and equipment with its recoverable amount, usually value in use. Cash flows exclude lease payments, because the lease liability is outside the test. In this guide's example, a store carried at 1,100 has a value in use of 755, so an impairment of 345 is recognised.

At a glance

Cash-generating unit
Usually each store
Carrying amount
Right-of-use asset plus fixtures
Cash flows
Exclude lease payments
Recoverable amount
Usually value in use
Indicators
Losses, closures, falling footfall
Reversals
Allowed if conditions improve
Store impairment testingCash-generating unit: Usually each store; Carrying amount: Right-of-use asset plus fixtures; Cash flows: Exclude lease payments; Recoverable amount: Usually value in use; Indicators: Losses, closures, falling footfall; Reversals: Allowed if conditions improve.KEY FACTS AT A GLANCEStore impairment testingCash-generating unitUsually each storeCarrying amountRight-of-use asset plusfixturesCash flowsExclude lease paymentsRecoverable amountUsually value in useIndicatorsLosses, closures, fallingfootfallReversalsAllowed if conditionsimproveTax BakersStore impairment testingCash-generating unit: Usually each store; Carrying amount: Right-of-use asset plus fixtures; Cash flows: Exclude lease payments; Recoverable amount: Usually value in use; Indicators: Losses, closures, falling footfall; Reversals: Allowed if conditions improve.KEY FACTS AT A GLANCEStore impairment testingCash-generating unitUsually each storeCarrying amountRight-of-use asset plus fixturesCash flowsExclude lease paymentsRecoverable amountUsually value in useIndicatorsLosses, closures, falling footfallReversalsAllowed if conditions improveTax Bakers
Key facts at a glance, as set out in this guide.

A store impairment example

A store has been loss-making for two years. Its right-of-use asset is carried at 800 thousand and its fixtures and equipment at 300 thousand. The lease has 7 years to run. The retailer forecasts store cash flows before rent of 150 thousand a year and uses a pre-tax discount rate of 9%.

Store carrying amount vs value in use (CU thousand)Store carrying amount vs value in use (CU thousand)800Right-of-useasset+300Fixtures-345Impairment755Value inuse
The loss is shared between the lease asset and the fixtures.
StepCU thousand
Carrying amount of the store1,100
Value in use: 150 x 5.033, the 7-year annuity factor at 9%755
Impairment loss345
Allocated to the right-of-use asset251
Allocated to fixtures and equipment94

The loss is allocated across the store's assets in proportion to their carrying amounts, without taking any below its own recoverable amount if that can be determined. The lease liability is unaffected: the rent must still be paid. Depreciation of the right-of-use asset falls for the rest of the lease.

Why are lease payments excluded from the cash flows?

Because right-of-use assets are in the carrying amount and the lease liability is not; including both the asset and the payments would double count. The cash flows are therefore store earnings before rent. Some retailers instead deduct the lease liability from the carrying amount and include the lease payments, which IAS 36 permits for practical reasons, provided the approach is consistent.

How are online sales handled?

When customers order online and collect or return in store, or when a store's presence drives online sales in its area, it is debatable which sales belong to the store. Retailers set a consistent policy, for example attributing click-and-collect sales to the collecting store, and disclose it. Where online and store cash flows cannot be separated, the cash-generating unit may need to be larger than a single store.

What about central costs and distribution centres?

Head office and distribution centre assets do not generate independent cash flows, so they are allocated to stores, or groups of stores, on a reasonable basis and tested with them. Store forecasts also need a reasonable allocation of central costs that the store causes, such as distribution.

Which impairment indicators trigger a store test?

Store-level losses or falling contribution, a decision to close or downsize, a fall in footfall or local competition, and wider triggers such as market capitalisation below net assets. Many retailers screen every store each year against a contribution threshold and test those that fail.

Should store closures be provided for?

Only when the IAS 37 criteria for a restructuring provision are met, typically a detailed formal plan announced to those affected. Even then, the provision covers direct costs such as redundancies and non-lease costs on vacated stores, not future operating losses. The right-of-use asset is dealt with through impairment.

Which assumptions are disclosed?

The key assumptions in store cash flows, such as sales growth and margins, the discount rate, and the sensitivity of the impairment to reasonably possible changes. Retailers with many impaired stores often show how many stores were impaired and the total loss.

How long should store forecasts run?

Over the remaining lease term, because the right-of-use asset is used up by then, and generally without assuming renewals that are not already in the lease term. Forecasts should not include the benefits of future refits or restructuring that the retailer has not yet committed to.

Can store impairments be reversed?

Yes, apart from goodwill, if the store's performance recovers and the recoverable amount increases, up to the carrying amount the assets would have had without the impairment. See value in use, cash-generating units and retail store leases.

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Questions people ask

How do retailers test stores for impairment?

Usually by treating each store as a cash-generating unit and comparing the carrying amount of its right-of-use asset, fixtures and equipment with its value in use.

Are lease payments included in store impairment cash flows?

Normally not, because the lease liability is outside the carrying amount; cash flows are before rent.

How are online sales attributed to stores?

Using a consistent policy, such as attributing click-and-collect sales to the collecting store; sometimes a group of stores is the cash-generating unit.

Can store impairments be reversed?

Yes, apart from goodwill, if the store's recoverable amount increases.

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 useIAS 36Cash-generating units and corporate assetsRetailStore leases under IFRS 16

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