Ind AS 36 requires an asset (or cash-generating unit, CGU) to be carried at no more than its recoverable amount — the higher of fair value less costs of disposal (FVLCD) and value in use (VIU). Value in use is the present value of the future cash flows expected from the asset or CGU, using cash-flow projections generally covering a maximum of five years (a longer period may be used only if it can be justified) and a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Cash flows beyond the explicit forecast are extrapolated using a steady or declining growth rate that should not exceed the long-term average growth rate for the products, industries, or country in which the entity operates — unless a higher rate can be justified by objective evidence.
When an impairment loss arises for a CGU, it is allocated first to reduce the carrying amount of any goodwill allocated to that unit, and only the remainder is allocated pro-rata to the other assets in the unit based on their carrying amounts. No asset is written down below the highest of its own fair value less costs of disposal (if determinable), its own value in use (if determinable), or zero — if allocating the pro-rata share to an asset would breach this floor, the excess re-allocates to the remaining assets in the unit.
Reversal of an impairment loss is permitted for assets other than goodwill, where there has been a change in the estimates used to determine recoverable amount since the last impairment was recognised — but the increased carrying amount can never exceed the carrying amount (net of depreciation or amortisation) that would have resulted had no impairment loss been recognised in prior periods. Impairment losses recognised for goodwill are never reversed in a later period. Goodwill and intangible assets with an indefinite useful life (or not yet available for use) must be tested for impairment at least annually and whenever an indicator of impairment exists — regardless of whether such an indicator is present; all other assets are tested only when an indicator of impairment exists at the reporting date.
A CGU carries goodwill of ₹150 L, plant & machinery ₹600 L, building ₹400 L and other net assets ₹250 L (₹1,400 L total). Five-year cash flows of ₹220–265 L are discounted at a 13% pre-tax rate with a 3% terminal growth rate; FVLCD is estimated at ₹1,150 L.
