Ind AS 36 Impairment Testing: Where Valuation Fits In
By Harihar S, Chartered Engineer & IBBI Registered Valuer
What Is Ind AS 36 Impairment Testing?
Ind AS 36, India's converged version of IAS 36, requires an entity to assess, at the end of each reporting period, whether there is any indication that an asset may be impaired. If such an indication exists, the entity must estimate the asset's recoverable amount, the higher of fair value less costs of disposal and value in use, and compare it to the asset's carrying amount. If the carrying amount exceeds the recoverable amount, an impairment loss is recognized. This applies to property, plant and equipment, land, buildings, plant and machinery, and most intangible assets, and is mandatory for companies required to follow Ind AS under the Companies Act 2013's phased applicability schedule.
What Indicates That an Asset May Be Impaired?
Ind AS 36 lists external indicators, a decline in an asset's market value beyond normal expectation, adverse changes in the technological, market, economic or legal environment, or an increase in market interest rates affecting the discount rate used in value-in-use calculations, and internal indicators, physical damage or obsolescence, or evidence that an asset's economic performance is, or will be, worse than expected. Where an asset does not generate cash flows independently, impairment is assessed at the Cash Generating Unit (CGU) level.
Where Does an Independent Valuation Fit In?
Fair value less costs of disposal, one half of the recoverable-amount test, is a market-based measure: what the asset would fetch in an orderly transaction between market participants, less the incremental costs of disposal. For land, buildings, plant and machinery, this requires the same market, cost and income approaches used in a standard fair value valuation, carried out by someone independent of the reporting entity so the result withstands auditor and regulator scrutiny. See our pages on Real Estate & Infrastructure valuation and Plant, Machinery & Equipment valuation for how these valuations are carried out.
Why Axium Valuation
Axium Valuation Services LLP is an IBBI registered valuer with 15+ years of experience in fair value assessments of land, buildings, plant and machinery for financial reporting, including Ind AS 36 impairment testing.
Frequently asked questions
Does every company need to test for impairment under Ind AS 36?
Only companies required to apply Ind AS under the Companies Act 2013's phased applicability schedule. For these companies, impairment testing under Ind AS 36 is triggered whenever an indicator of impairment is present, not on a fixed annual schedule, except for goodwill and indefinite-life intangibles, which are tested annually regardless of indicators.
What is "recoverable amount" under Ind AS 36?
The higher of fair value less costs of disposal and value in use. If an asset's carrying amount exceeds this recoverable amount, an impairment loss must be recognized.
Is impairment valuation covered under Axium's IBBI registration?
Yes. Determining fair value less costs of disposal for land, buildings, plant and machinery falls under IBBI Entity Registration IBBI/RV-E/04/2021/144, covering both the Land & Building and Plant & Machinery asset classes.
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