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This Accounting Standard is applicable on or after 01-04-2004 for the companies which are listed or in the process of listing and those enterprises who have turnover exceeding 50 crores and for the rest of the enterprises it is applicable on or after 01-04-2005.

This Accounting standard helps the enterprise to ensure that its assets are not carried at more than their recoverable amount.

Impairment can be indicated by two sources-

  1. External Source
  2. Internal Source

External Source includes decline in market value, changes in interest rates or rate of return,   etc. & these are minimum indicators.

Internal Sources include evidence of physical damage or obsolescence, disposal, discontinuance, restructuring plans, declining performance of assets, etc.

This Accounting Standard is applicable to all assets other than –

  • Deferred Tax Assets(AS – 22)
  • Inventories(AS – 2)
  • Financial Assets including Investments (AS – 13)
  • Assets arising from construction contracts (AS – 7)
  • Assets i.e. individual or Cash Generating Unit that may be carried at cost or revalued amount

Impairment Loss

  • Asset is not impaired if carrying amount <= Recoverable Amount
  • Asset is impaired if carrying amount > Recoverable Amount
  • Impairment Loss = Carrying Amount – Recoverable Amount

Impairment Loss needs to be recognized against the revaluation reserve, if any and the balance should be recognized as an expense in Profit & Loss A/C.

Recoverable Amount

 Recoverable amount is the amount higher of net selling price and its value in use


Net selling price = Asset’s market price less cost of disposal

Value in Use = Present Value Factor

Present Value Factor = estimated future net cash flows arising from use of the asset + disposable value.

Cash Generating Unit

“A cash generating unit is the smallest identifiable group of assets that generates cash inflow from continuing use that are largely independent of the cash inflow”

Disclosure Requirements

  • For Each class of asset, the amount of impairment loss should be charged to Profit & Loss A/C.
  • The amount of Impairment Loss is to be adjusted against revaluation reserve.
  • Reasons for change in the cash generating unit & the earlier description and the changed cash generating unit.

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