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Impairment


Impairment is an accounting term used to describe the situation where an fixed asset's carrying amount is greater than its recoverable amount.



To determine whether an item of property, plant and equipment is impaired, an entity applies AASB 136. That Standard explains how an entity reviews the carrying amount of its assets, how it determines the recoverable amount of an asset, and when it recognises, or reverses the recognition of, an impairment loss.


Impairment Checklist

Below is a list of points that should be considered, when assessing whether a given asset / asset class is impaired.

  • during the period, an asset’s market value has declined significantly more than would be expected as a result of the passage of time or normal use;
  • significant changes with an adverse effect on the entity have taken place during the period, or will take place in the near future, in the technological, market, economic or legal environment in which the entity operates or in the market to which an asset is dedicated;
  • market interest rates or other market rates of return on investments have increased during the period, and those increases are likely to affect the discount rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially;
  • the carrying amount of the net assets of the entity is more than its market capitalisation;
  • evidence is available of obsolescence or physical damage of an asset;
  • significant changes with an adverse effect on the entity have taken place during the period, or are expected to take place in the near future, in the extent to which, or manner in which, an asset is used or is expected to be used. These changes include the asset becoming idle, plans to discontinue or restructure the operation to which an asset belongs, plans to dispose of an asset before the previously expected date, and reassessing the useful life of an asset as finite rather than indefinite;140 and
  • evidence is available from internal reporting that indicates that the economic performance of an asset is, or will be, worse than expected.


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