A permanent reduction in the recoverable value of an asset below its carrying amount on the balance sheet, requiring a write-down and recognition of impairment loss.
Impairment occurs when an asset's recoverable amount (higher of fair value less costs of disposal, and value in use) falls below its book value. Unlike depreciation (systematic allocation over useful life), impairment is event-driven — triggered by adverse changes in market conditions, technology, legal environment, or physical damage. Under Ind AS 36, companies must test assets for impairment when indicators exist (mandatory annually for goodwill and indefinite-life intangibles). The impairment loss is recognized in the P&L and reduces the asset's carrying value. Reversal of impairment is allowed for most assets (except goodwill) if conditions improve. Impairment testing is one of the most judgment-intensive areas in financial reporting.
A company purchased a patent for ₹20,00,000 (carrying value after amortization: ₹12,00,000). A competitor launches a superior technology. Fair value assessment: ₹7,00,000. Value in use (discounted future cash flows): ₹8,00,000. Recoverable amount: ₹8,00,000 (higher). Impairment loss: ₹12,00,000 − ₹8,00,000 = ₹4,00,000 recognized in P&L.
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External indicators: market value decline, adverse industry/economic changes, rising interest rates. Internal indicators: physical damage, asset idle or planned disposal, worse-than-expected performance. Goodwill and indefinite-life intangibles must be tested annually regardless of indicators.
Yes, for most assets under Ind AS 36, if the reasons for impairment no longer exist. The reversal cannot increase the asset above what it would have been without impairment (i.e., after normal depreciation). However, goodwill impairment can NEVER be reversed — this is an absolute rule under all accounting standards.
An intangible asset representing the excess purchase price paid during an acquisition over the fair value of the target company's identifiable net assets.
The systematic allocation of the cost of a tangible asset over its useful life, representing the decline in value due to wear, use, or obsolescence.
The gradual write-off of the cost of an intangible asset (like patents, software, or goodwill) over its useful life, or the repayment of a loan in installments.
Long-term tangible assets owned by a business that are used in operations and not intended for sale, such as land, buildings, machinery, vehicles, and equipment.
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