This document provides an overview of Accounting Standard 28 regarding impairment of assets. It outlines the objective to ensure assets are carried at no more than their recoverable amount. The standard is applicable to companies listed or in the process of listing with a turnover over 50 crores from 2004, and all other enterprises from 2005. Assets should be tested for impairment if there are any internal or external indicators, such as obsolescence, declines in value or performance. The recoverable amount is the higher of an asset's net selling price or value in use, which is the present value of estimated future cash flows. Impairment losses must be accounted for when the recoverable amount is less than the carrying amount.

1. Accounting Standard – 28
Impairment Of Assets
PREPARED BY: CA. JIMMIT D MEHTA
MODERATOR: SHINING STARS: A GROUP OF PROFESSIONALS

2. OVERVIEW
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Objective
Applicability
Indications Of Impairment
Impairment – Bird’s Eye View
Scope
Definitions

3. OBJECTIVE
“To prescribe the procedures that an
enterprise applies to ensure that its assets are
carried at no more than their recoverable
amount.”

4. APPLICABILITY
Accounting Periods
On or After 01-04-2004
- Companies which are
listed or in the
process of listing
- Enterprises having
turnover exceeding 50
crores
On or After 01-04-2005
All other enterprises Corporate or NonCorporate

5. INDICATORS OF IMPAIRMENT
External Sources:
o significant decline in market value
o significant changes with adverse effect due to
technological, market, economic, legal
environment
o changes in interest rates or rates of return
o net assets are more than its market capilisation
These indicators to be considered as a minimum

6. INDICATORS OF IMPAIRMENT
Internal Sources:
o evidence of obsolescence or of physical damage
o discontinuance, disposal, restructuring plans
o assets performance declining or expected to
decline
These indicators to be considered as a minimum

7. IMPAIRMENT – BIRD’S EYE VIEW
Identifying an asset that may be impaired
Question: Whether at each balance sheet date,
recoverable amount of each asset to be estimated?
Answer: NO
Question: To See whether there is any indication
that an asset may be impaired?
Answer: IF YES, recoverable amount to be
estimated

8. IMPAIRMENT – BIRD’S EYE VIEW
NO
YES
Indication of
Impairment ?
Can assets be assessed
individually?
Identify
CGU
YES
Estimate Recoverable
Amount
NO
NO
No
Impairment
Is the Recoverable
Amount Less than
Carrying Amount?
YES
Account and Disclose
Impairment Loss
A

9. IMPAIRMENT – BIRD’S EYE VIEW
A
Identify
CGU
Estimate Recoverable
Amount of CGU
Is the Recoverable Amount
Less than Carrying Amount?
YES
NO
No
Impairment
Allocate Impairment Loss to
Goodwill and Assets in CGU
Account and Disclose
Impairment Loss

10. SCOPE
Applies to all assets other than:
 Inventories (AS – 2)
 Assets arising from construction contracts (AS – 7)
 Financial Assets including Investments (AS – 13)
 Deferred tax assets (AS – 22)
Assets i.e. Individual asset or Cash Generating Unit
(CGU)
 May be carried at cost / revalued amount

11. DEFINITION
 Impairment Loss
 Carrying Amount (CA)
 Recoverable Amount (RA)
 Cash Generating Units (CGU)

12. IMPAIRMENT LOSS
It is an amount by which Carrying Amount of an
assets exceeds its Recoverable Amount.
CARRYING AMOUNT
Carrying amount is the cost of the asset recognized
in the Balance Sheet after deducting:
 Accumulated depreciation / amortization
 Accumulated impairment loss

13. RECOVERABLE AMOUNT
It is the higher of an asset’s net selling price and
its value in use.
NET SELLING PRICE
 Sale price less costs of disposal in an arm’s
length transaction.
 Asset traded in an active market the current bid
price less costs of disposal.

14. VALUE IN USE
 Present Value of Estimated Future Cash Flows
 Cash Flow Projections
 Discount Rate

15. VALUE IN USE
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
Is the present value of estimated future cash flows expected
from the use of an asset & from its disposal at the end of its
useful life.
Cash Flow Projections
o Short term – maximum 5 years, unless longer can be
justified.
o Based on financial budgets approved by management.
o Do not include financial and taxation cash flows
Long Term Projections
o Based on short term projections
o Steady or declining growth
o Growth rates exceeding long term average rates of the
product, industry or economy discouraged
o Estimation for the assets in its current condition

16. VALUE IN USE
Discount rate should
 be pre-tax, since cash flows are also pre-tax
 be independent of the entity’s capital structure
 reflect the time value of money and the risks related to
the assets
 reflect weighted average cost of capital
When asset specific rates are not available, following may
be considered as a starting point
 Techniques such as CAPM
 Cost of borrowing
 Adjust the same to reflect the risks of the assets

17. CASH GENERATING UNIT (CGU)
 At the first instance, to determine impairment loss, the
recoverable amount to be estimated for the 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
other assets or group of assets.
 Allocation of goodwill and corporate assets to cash
generating unit

18. CASH GENERATING UNIT (CGU)
 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

19. REVERSAL OF IMPAIRMENT LOSS
 If there are indications, that an impairment loss no longer
exists, the enterprise should estimate the recoverable
amount of the asset.
 In case recoverable amount is higher than asset’s carrying
amount, the impairment loss earlier recognized 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 recognized for
the asset in prior accounting periods.

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