This document provides an overview of Accounting Standard 28 on impairment of assets. It discusses the applicability, objective, scope, key concepts, identification of impaired assets, determining the recoverable amount, recognition and measurement of impairment losses, treatment of cash generating units, reversing impairment losses, required disclosures, and transitional provisions. The standard aims to ensure that assets are not carried at more than their recoverable amount and that any impairment losses are recognized in the financial statements.

1. ACCOUNTING STANDARD-28
IMPAIRMENT OF ASSETS
PRESENTED By :-
Dr. Raj K. Agarwal
M. Com, FCA, FCS, AICWA, LLB, Ph. D
M/s. Rakesh Raj & Associates
Chartered Accountants

2. AS-28 IMPAIRMENT OF ASSETS
 OVERALL VIEW
 - Applicability
 - Objective
 - Scope
 - Concept
 - Identification of asset to be impaired - indications
 - Recoverable amount of an asset - Net selling price of value
in use
 - Recognition & measurement of an impairment loss
 - Cash generating unit
 - Reversal of impairment loss
 - Disclosures
 - Transitional provisions
 - Certain issues

3. AS-28 IMPAIRMENT OF ASSETS
 APPLICABILITY
 Accounting periods : - Companies which are
 on or after 01.04.2004 listed or in the process
 of listing
 - Enterprises having
 turnover exceeding
 50 crores
 on or after 01.04.2005 : All other enterprises -
 Corporate or non-
 corporate

4. OBJECTIVE.
- To ensure that the assets are carried at no more than
recoverable amount
- Recoverable amount not to exceed the amount to be
recovered through use or sale of the asset
- Impaired loss to be recognised in the financial
statement
- Impaired loss may be reversed in certain
circumstances
- To make certain disclosures for impaired assets.
AS-28 IMPAIRMENT OF ASSETS

5. SCOPE
* To be applied in accounting for impairment of all
assets, other than :-
-Inventories as per (AS-2)
-Assets arising from construction contracts as per
(AS-7)
-Financial assets including investments as per (AS-13)
-Deferred tax assets as per (AS-22)
* Applicable to assets valued at cost or at revalued
amount
AS-28 IMPAIRMENT OF ASSETS

6. CONCEPT
Impairment loss - is the amount by which the carrying
amount of an asset exceeds its
recoverable amount
Carrying amount- is the amount at which an asset is
recognised in the balance sheet
(W.D.V.)
Recoverable - is the higher of an asset’s net selling
amount price and its value in use
AS-28 IMPAIRMENT OF ASSETS

7. CONCEPT
Net selling price - Sale price - costs of
disposal in an arm’s
length transaction
Value in use - Present value of estimated
future cash flows expected
from the use of an asset &
from its disposal at the end
of its useful life
AS-28 IMPAIRMENT OF ASSETS

8. Identifying an asset that may be impaired
Whether at each balance sheet date, recoverable
amount of each asset to be estimated ?
To see whether there is any indication that an asset
may be impaired
recoverable amount to be estimated
AS-28 IMPAIRMENT OF ASSETS
NO
IF YES

9. Indications for estimating recoverable amount
External sources
- Decline in market value significantly
- Significant changes with an adverse effect on the enterprise
due to technological, market, economic or legal environment
- Decrease in assets value in use due to adjustment in the
discount rate as a result of increase in market interest rate or
other market rates of ROI
- Carrying amount of the net assets of the enterprise is more
than its market capitalisation
AS-28 IMPAIRMENT OF ASSETS

10. INTERNAL SOURCES
- Obsolescence or physical damage of an asset
- Significant changes with an adverse effect on the
enterprise, regarding use of asset e.g. - plans to
discontinue or restructuring the operation or disposal
of asset at an earlier date.
- Decline in the economic performance of asset
AS-28 IMPAIRMENT OF ASSETS
- list is not exhaustive
- concept of materiality

11. Recoverable amount
Net selling price
or Whichever is higher
Value in use
If either of these amounts exceeds the asset’s carrying
amount, the asset is not impaired and it is not necessary to
estimate the other amount
AS-28 IMPAIRMENT OF ASSETS
Whether both to be determined - No

12. Net Selling Price
Selling Price - How to estimate ?
- Binding sale agreement
- Market price
- Current bid price
- Price of the most recent transaction
- Based upon best information available
AS-28 IMPAIRMENT OF ASSETS

13. Value in use
- Estimating the future cash inflows and outflows arising from
continuing use of the asset and from its ultimate disposal
and
Applying the appropriate discount rate to these future cash
flows
- While estimating future cash flows, the following factors to be
considered
- effect of price increase due to general inflation
- for the asset in its current condition
- adjustment of associated risk factors
- not to include cash inflows or outflows from
financing activities.
AS-28 IMPAIRMENT OF ASSETS

14. - Discount rate - To be pre tax rate
- That reflects time value of
money and the risks specific
to the asset as percurrent market
assessments unless risk factors
have been adjusted while
estimating future cash flows
AS-28 IMPAIRMENT OF ASSETS

15. Value in use - Certain issues
- While estimating cash outflows, whether repayment of
installment of borrowings (against those assets) and
interest cost thereof, to be taken into account.
- While estimating cash outflows, whether following costs
to be taken into account :-
- Corporate office costs
- Interest cost of working capital
- Depreciation of assets
- Why pre-tax cash flows are required to be considered?
- Why income tax expense, which is a cash outflow of
variable nature, is not being considered?
AS-28 IMPAIRMENT OF ASSETS

16. Recognition &Measurement of an impairment loss
* If the recoverable amount of an asset is less than
its carrying amount, the carrying amount of the
asset should be reduced to its recoverable amount
* That reduction is an impairment loss
* Impairment loss to be recognised as an expense in
the profit and loss account
* Adjustment against revaluation reserve if existing
against the same asset
* Depreciation forfuture periods to be adjusted as
perrevised carrying amount
AS-28 IMPAIRMENT OF ASSETS

17. Cash Generating Units
- At the first instance, to determine impairment loss, the
recoverable amount to be estimated forthe individual
asset
- If it is not possible to estimate the recoverable amount
of the individual asset, to determine the recoverable
amount of the cash generating unit to which the asset
belongs.
- A cash generating unit is the smallest identifiable
group of assets that generates cash inflows from
continuing use that are largely independent of the
cash inflows from otherassets orgroup of assets
- Allocation of goodwill and corporate assets to cash
AS-28 IMPAIRMENT OF ASSETS

18. - Impairment loss for a cash generating unit to be
allocated for individual assets in the following order
-first to goodwill allocated to the cash generating
unit, if any, and
-then, to the other assets of the unit on pro-rate basis
based on the carrying amount of each asset in the
unit
AS-28 IMPAIRMENT OF ASSETS

19. Reversal of impairment loss
- If there are indications, that an impairment loss no
longerexists, the enterprise should estimate the
recoverable amount of the asset
- In case recoverable amount is higherthan asset’s
carrying amount, the impairment loss earlier
recognised may be reversed
- The increased carrying amount of an asset due to a
reversal of an impairment loss should not exceed
the carrying amount that would have been
determined (net of depreciation) had no
impairment loss been recognised forthe asset in
prioraccounting periods.
AS-28 IMPAIRMENT OF ASSETS

20. Disclosures
- Foreach class of asset, the financial statements should
disclose:-
- the amount of impairment loss and the reversal, if any
recognised in profit and loss account
- the amount of impairment loss and its reversal, if any,
recognised against revaluation surplus
- Foreach segment as perAS-17, separate information to be
given
- The events and circumstances that led to the recognition or
reversal of the impairment loss
- The nature and basis of recoverable amount determined for
recognising (reversing) impairment loss
- Otherdisclosures
AS-28 IMPAIRMENT OF ASSETS

21. Transitional Provision
In the first year of applicability of this
standard, if there is any impairment loss in
the beginning of the year, the same to be
recognised and adjusted against opening
balance of revenue reserves or revaluation
reserve as the case may be.
AS-28 IMPAIRMENT OF ASSETS

22. CERTAIN ISSUES
- Most of the calculations in the standard are based upon
estimates and projections. What is the reliability of the same.
- Whether auditors are bound to rely upon management’s
estimates and projections.
- Net selling price of a particular asset is less than its carrying
amount but value in use of cash generating unit (of which this
asset is a part) is higher. Whether asset is required to be
impaired.
- In case a particular asset becomes idle which was earlier part
of cash generating unit and now not in use, whether its value
to be determine separately or still as part of cash generating
unit.
- Impairment loss is a timing difference as per AS-22 and
deferred tax asset may be created for the same subject to the
principle of prudence.
AS-28 IMPAIRMENT OF ASSETS

23. T H A N K Y O U