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Impairment of assets

IAS 36 Impairment of Assets guides goodwill and other intangible assets with indefinite useful lives. The standard’s impairment assessment procedure uses a comparative technique to compare the asset’s carrying value to its recoverable value. If the carrying value of the relevant asset exceeds the recoverable value, the asset is regarded as impaired, and an impairment loss is recorded.

The company must recognize an impairment loss in its financial statements when an asset is impaired. The difference between the asset’s carrying and recoverable amounts is used to determine the impairment loss. The impairment loss is recognized as an expense in the income statement and reduces the asset’s carrying amount in the balance sheet.

A vital accounting concept is the impairment of assets, which enables businesses to ensure that their financial statements accurately reflect the true worth of their assets. It also allows investors and other stakeholders to understand the company’s financial health and make informed decisions.

Given the rising number of businesses reporting mediocre operating results and the rising share of intangible assets in total assets held by corporations, the significance of impairment testing must be considered. Testing for impairments is slowly transitioning from the exception to the rule.