Ind AS 36

CMA Final

CFR

Final Push Series

Book let

Ind AS 36

Sanjay Welkins

Sanjay Welkins Classes - SWC

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 Sanjay Welkins Classes

CFR Final Push

Revisionary Session - 20

Ind AS 36 :

Impairment Losses

1. The Objective of Ind AS 36 is to ensure that assets are carried at not more than at recoverable value. The
standard also specifies when an entity should reverse an impairment loss and provide disclosures while
preparing and presenting the financial statements.

2. This standard shall not apply to:

* Inventories
* Contracts that are recognized in accordance with Ind AS 115
* Deferred Tax Assets
* Financial Assets
* Non Current Assets classified for sale in accordance with Ind AS 105
* Biological Assets related to agricultural activity
* Assets arising from the employee benefits.

3. Impairment Loss
Impairment loss =Recoverable Value- Carrying Amount
Recoverable amount shall be higher of the following:
 Fair Value less cost of disposal
 Value in use

4. Fair Value less cost of disposal

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Ind AS 36

Costs of disposal are deducted while determining the fair value less cost of disposal. Examples of such costs
are:
* Legal costs
* Stamp duty and similar taxes
* Costs of removing the assets
* Incremental costs for bringing the assets into the conditions for its sale
* Other costs
5. Value in use
It shall be calculated on the following basis:
* Estimated Future Cash Flow
* Discount Rate

6. Recognition and Measurement of impairment loss

An impairment loss shall be recognised immediately in Statement of profit or loss. An impairment loss on a
non-revalued asset is recognised in profit or loss.
An impairment loss on a revalued asset reduces the revaluation surplus for that asset.

7. Impairment Test
It can be conducted on annual basis.
Test for impairment annually when:
Intangible asset has indefinite life or intangible assets are not available for use.

7.1 Impairment Indicators

External Indicators
Significant decline in market value
Change in technology, market, economic or legal environment
Change in interest rate.
Low market capitalization

7.2 Internal Indicators

Assets performance is declining
Discontinuance or restructuring plan
Evidence of physical obsolesces

Case Scenario - 1 Dec. 24 Examination

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EARTH Ltd. purchased an equipment for Rs. 51 lakh on April 1, 2023. The useful life of the equipment is 5
years and the residual value is estimated to be Rs. 1 lakh. The company adopts straight line method of
depreciation. On March 31, 2024, a test for impairment was conducted after obtaining the following
information:
Fair value less costs to sell Rs. 36 lakh
Value in use Rs. 32 lakh
Having regard to Ind AS 36, calculate the impairment loss to be recognised for the year ending March
31,2024.
a. Rs. 4,00,000

b. Rs. 9,00,000

c. Rs. 5,00,000

d. None of the above

Case Scenario - 2 Dec. 23 Examination

KOEL Ltd. acquired a machine on 1st April, 2017 for 14 crores that had an estimated useful life of 7
years. The machine is depreciated on straight line basis and does not carry any residual value. On 1st
April, 2021, the carrying value of the machine was r eassessed at 10.20 crores and the surplus arising
out of the revaluation being credited to revaluation reserve.
For the year ended March 2023, conditions indicating an impairment of the machine existed and the
amount recoverable ascertained to be only 1.58 crores.
The company had followed the policy of writing down the revaluation surplus by the increased charge
of deprecation resulting from the revaluation.
You are required to calculate the loss on impairment of the machine and show how this loss is to be
treated in the books of KOEL Ltd.
Answer:
Depreciation if no Increased charge of
Revaluation Depreciation
would have taken
place
Cost 1.4.17 14
Life 7
Depreciation 2
Carrying amount on 1.4.21 : 14 - 2 x 4 6
Revalued at 10.20
Revaluation Reserve 4.20
Depreciation Revised 10.20 / 3 3.4 2 1.4
WDV on 31.3.22 : 10.20 - 3.4 6.8
Depreciation 3.4 2 1.4

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Ind AS 36

WDV on 31.3.22 : 6.8 - 3.4 3.4

Recoverable Amount 1.58
Impairment Loss 1.82
IL shall be set off against RR to the extent of Balance remaining in RR after subtracting increased
charge of Depreciation.

Revaluation Surplus : 4.20

Less Increased Depreciation due to Revaluation 1.4 + 1.4 = 2.8
Balance in RR = 1.40
Out of 1.82 Lakhs of IL of 1.40 shall be debited to RR and balance 0.42 lakhs shall be debited to PL.

Case Scenario - 3 , MTP SET 1 June 23 Term

Details for an Asset are as under: Cost of Assets Rs. 60 lakhs, Useful life period 10 years, Salvage value Rs.
4 lakhs, Useful Life remaining 3 years.
Upward revision done in last year by 50%.
Current value in use is Rs. 12 lakhs, Current selling price Rs. 11 lakhs, Current disposal cost Rs. 1 lakh.
Impairment Loss to be charged to Profit and Loss Account as per applicable Ind AS would be
a. Rs. 18.7 lakhs b. Rs. 13.2 lakhs c. Rs. 5.5 lakhs d. None of the above

Particulars Rs. in lakhs Depreciation if

no R/L would
have taken
place
Carrying Amount in the beginning of 7th year 26.40
60 – (60 – 4) × 6
10
Add: Upward Revaluation (26.4 × 50%) 13.20
Carrying Amount at the end of 7th year before Dep. 39.60

Less: Revised Depreciation = (39.6 – 4) (8.90) 5.60

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Carrying Amount in the beg. of the 8th year 30.70

(including revaluation amount of 13.2 lakhs)

Less: Current Recoverable Amount (12.00)
(being Net Selling Price or Value in use whichever is higher)
Impairment Loss 18.70
Less: Impairment Loss Charged to Revaluation Reserve (13.20)

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 Sanjay Welkins Classes

Impairment Loss charged to Profit and Loss Account 5.50

So, the correct answer is (c)

8. Impairment loss for Cash Generating Units

First, to the carrying amount of any goodwill allocated to for Cash Generating Unit.
Then to other assets, pro rata on the basis of carrying amount of each asset.

Case Scenario - 4

K- 21 Limited has CGU, which around 100 assets with carrying amount of Rs. 100 lakhs and includes Rs.

20,00,000 allocated goodwill. In the current year one of its individual asset is broken down. It's Carrying

amount on 31.3.27 is Rs. 5,00,000 and FLCOD is Rs. 20,000. Recoverable amount of CGU is Rs.

94,00,000. Determine Impairment Loss.

Response:

Individual Asset:

Carrying amount Rs. 5,00,000

Recoverable amount Rs. 20,000

Impairment loss Rs. 4,80,000

Allocation of Impairment Loss:

CGU 100

Assets other than GW ` 80,00,000

Less Impairment Loss ` 4,80,000
GW ` 20,00,000 ` 75,20,000

Total carrying amount of CGU = Rs. 20,00,000 + Rs. 75,20,000 = Rs. 95,20,000

Recoverable amount of CGU = Rs. 94,00,000

Impairment Loss of CGU = Rs. 1,20,000

Loss shall be utilised first against GW and remaining if any, against remaining assets.

Revised carrying amount of CGU:

GW 20,00,000 - 1,20,000 = 18,80,000

Other Assets ₹ 75,20,000

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Ind AS 36

Case Scenario - 5

K-22 has CGU - Plant A having a carrying amount of Rs. 1,000 lakhs as at 1.4.28. Plant A was acquired

under business combination and goodwill of Rs. 200 lakhs was allocated to it. It is depreciated on SLM basis.

Useful life of Plant A is 10 Years with NIL Revised Value.

On 31.3.29, Plant A has RA of Rs. 600 lakhs. Calculate Impairment Loss of Plant A. Also, prescribe its

allocation as per Ind AS 36.

Response:

Impairment Loss should be tested after depreciation:

In the given case, Depreciation is = 1,000/ 10 Rs. 100 lakhs per year.

Carrying amount of assets, other than GW = 1,000 - 100 = Rs. 900 lakhs

Goodwill = Rs. 200 lakhs

Total Carrying amount of CGU : Plant A = 900 lakhs + 200 lakhs = Rs. 1,100 lakhs

Recoverable amount Rs. 600

Impairment Loss = Rs. 500

ii. Allocation of Impairment Loss:

First, Rs. 200 shall be adjusted against GW.

Remaining IL of Rs. 300 shall be adjusted against Other Assets

Case Scenario - 6

K-23 limited acquired ‘Bee’ limited for Rs. 600 crores. Bee Limited has three CGU viz. X, Y and Z. K-23

recognised GW of Rs. 120 crores and allocated it to CGU X ,Y and Z but not individually .

For the accounting year ended 31.3.28, CGU X incurred substantial losses and its Recoverable amount is

estimated at Rs. 200 crores.

Carrying amount respective CGU's is as under:

CGU Carrying Amount Rs. in crores

X 260

Y 240

Z 160

GW 24

684

Recoverable amount of the group of CGUs including GW is Rs. 630 crores.

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CGU X comprises of only two assets with book value of Rs. 100 and 160 crores respectively.

Calculate the Impairment Loss to be recognised in financial statements.

Response:

There is clear indication that CGU - X is impaired.

Hence it should be tested first.

Carrying amount of:

X 260

RA 240

IL 20

Loss of 20 crores shall be allocated between two assets of CGU X in proportion of 100:160. After adjusting IL

of 20, carrying amount of CGU - X will be : 260 - 20 = Rs. 240 crore.

Now, entire group of CGU shall be tested:

CA of the group:

X 240

Y 240

Z 160

GW 24

664

RA 630

IL 34

Loss 34 crores should be adjusted:

First against GW : Rs. 24

And then against remaining assets of the group: Rs. 10

Case Scenario - 7

K-24 limited, on 31.3.2028, acquired CEE limited for Rs. 600 lakhs. CEE limited has three CGU - X , Y and Z.

Net Fair Value less cost of sales are Rs. 240, Rs. 160 and Rs. 80 respectively.

K-24 recognised Goodwill of Rs. 120 lakhs and it allocated the GW to CGU's of CEE limited only.

For the accounting year ended 31.3.29, CGU - X incurred substantial losses and Recoverable amount is

determined at Rs. 240 lakhs.

Carrying amount of CGU is:

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Ind AS 36

X 260

Y 240

Z 160

GW 24

684

Calculate the impairment loss to be recognised in the financial statements if goodwill is allocated to each

CGU on relevant fair value basis and assume CGU - X consists of only two assets with book value of Rs.
100 and Rs. 160 lakhs respectively.

Response:

In the given case, Goodwill has been allocated on the basis of Fair Value

X 240 240/480

Y 160 160/480

Z 80 80/480

Goodwill allocated to CGU - X : 24 x 240/480 = Rs. 12 lakhs

Carrying amount of X : 260 + 12 = 272

Recoverable amount 240

Impairment Loss Rs. 32

First of all shall be applied against Goodwill that is Rs. 12

Remaining loss of 20 lakhs shall be adjusted against two assets of CGU X in the ratio of 100: 160 i.e. Rs. 8 &

Rs. 12 lakhs

9 : Corporate Assets:

If there is an indication that a corporate assets may have been impaired, recoverable amount is determined

for the CGU to which corporate asset belongs (after allocation of corporate assets to the CGU). Then, this

Recoverable amount, is compared to the carrying amount of this CGU and Impairment loss, if any, is

recognised on pro-rata basis of corporate assets and other assets of CGU.

Case Scenario - 8

K - 27 Inc. has three CGU - A, B and C. there are adverse changes in technological field in which entity

operates. Thus entity conducts impairment test of each of its CGUs. At the end of 2021, the carrying amount

of A, B and C are Rs. 100, Rs. 150 and Rs. 200 lakhs respectively.

The operations are conducted from Head-quarter (HO). The carrying amount of HO assets is Rs. 200 lakhs

that comprises of HO Buildings Rs. 150 lakhs and a research centre Rs. 50 lakhs.

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 Sanjay Welkins Classes

HQ building devoted to of CGU in ratio of 19: 56 : 75.

Carrying amount of research centre cannot be allocated on a reasonable basis.

Value-in-use of CGUs are - Rs. 199 , Rs. 164 and Rs. 271 lakhs respectively.

Recoverable amount of the entity as a whole is Rs. 720 lakhs.

Perform Impairment test.

Response:

When some corporate assets can be allocated to CGUs, first allocate these assets and perform test.

Rs. in lakhs

A B C Total

Rs. Rs. Rs. Rs.

Carrying amount 100 150 200 450

+ Corporate assets

Buildings 19 56 75 150

Total Carrying amount 119 206 275 600

Recoverable amount 199 164 271 -

[ higher of VIU & FVLCOD)

Impairment Loss - 42 4 46

Allocation of IL

HQ building - 12 [ 42 x 56/206] 1 [ 4 x 75/275]

CGU - 30 [ 42 - 12] 3 [ 4 -1]

Carrying amount after IL 100 120 197

[150 - 30] [200-3 ]

Carrying amount of: CGU, Carrying amount of HQ buildings: 150 - 12 - 1 = 137

Total carrying amount of CGU and HQ assets:

A 100

B 120

C 197

HQ Buildings 137

Research centre 50

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Ind AS 36

Total 604

Recoverable amount 720

No Impairment Loss

If Impairment Loss would have been there then same would have been allocated in the ratio of carrying

amount.

Case Scenario - 9 - MTP June 23 Term ( Modified)

XYZ Ltd. has two CGUs P and Q. Carrying amount of CGU P and Q are Rs. 3,000 and Rs. 1,000 lakhs
respectively on 31.03.2028. The company has an administrative building of Rs. 1,200 lakhs and a R&D center
of Rs. 900 lakhs. Administrative building can be allocated ( in ratio of 30 : 5) but R&D center cannot be
allocated to the CGUs.
Due to the spread of corona virus and lockdown, impairment tests have been done on 31.03.2028.
Remaining useful life of P is 10 years and of Q 5 years.
Fair value less cost of disposal is not realizable.
Future expected cash flows from CGU P are Rs. 600 lakhs (5 years) and Rs. 300 lakhs (5 years), from Q is
Rs. 350 lakhs (5 years).
Future expected cash flows from XYZ Ltd. as a whole is Rs. 950 lakhs (5 years) and Rs. 400 lakhs (5 years).
Discounting rate 12% p.a. Annuity of 12%: 1-5 = 3.6048, 6-10 = 2.0454.
As an expert on Ind AS, you have been asked by the company to guide the management in calculating
impairment loss to be recognized in the financial

Response
Since FV less cost of disposal is not available, Recoverable amount = Value in Use

Again, value in use = PV of Cash flows.

So, Recoverable amount of P = 600 × 3.6048 + 300 × 2.0454 = Rs. 2776.50 lakhs.

So, Recoverable amount of Q = 350 × 3.6048 = Rs. 1,261.68 lakhs.

So, Recoverable amount of XYZ Ltd. = 950 × 3.6048 + 400 × 2.0454 = Rs. 4,242.72

CGU Proportion Allocated administrative building

P 30 1,000 (i.e., 1,200 × 30 / 35)

Q 5 200 (i.e., 1,200 × 5 / 35)
= 35 1,200

Calculation for impairment loss:

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CGU Carrying Allocated H.O Total carrying Recoverable I/L

amount Building amount Amount

P 3,000 1,000 4,000 2,776.50 1,223.50
Q 1,000 200 1,200 1,261.68 -

Impairment loss adjusted against CGU Asset = 1,223.50 × 3,000 = Rs. 917.625 and
4,000
administrative building = 1,223.50 ×1000 = Rs. 305.875 lakhs.
4,000

Revised carrying amount before R&D adjustment:

Administrative building = 1200 – 305.875 = Rs. 894.125 lakhs;

P = Rs. 3000 – 917.625 lakhs = 2,082.375;

Q = Rs. 1,000 lakhs.

Impairment test on overall basis:

Carrying amount of CGU P, Q, administrative building and R&D = 2082.375 + 1,000 +894.125 + 900 = Rs.
4,876.50 lakhs.

Recoverable amount = Rs. 4,242.72 lakhs.

Impairment loss = 4,876.50 – 4,242.72 = 633.78

Since carrying amount is higher than recoverable amount, the asset is impaired.

Set off Impairment loss against CGU Asset P = 633.78 × 2082.375 /4,876.50 = Rs. 270.64,

Q = 633.78 ×1000 / 4,876.50 = 129.96,

Administrative Building = 633.78 × 894.125 / 4,876.50

= Rs. 116.34 lakhs and R&D = 633.78×900 /4876.50 = 116.96

So, final carrying amount: A = 2082.375 – 270.64 = 1811.735, B= 1000-129.96= 870.04,

Administrative Building = 894.125 – 116.34 = 777.785, R&D = 900- 116.96 =783.04

Examination and MTP Questions

Dec. 24
EARTH Ltd. purchased an equipment for Rs. 51 lakh on April 1, 2023. The useful life of the equipment is 5
years and the residual value is estimated to be Rs. 1 lakh. The company adopts straight line method of

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Ind AS 36

depreciation. On March 31, 2024, a test for impairment was conducted after obtaining the following
information:
Fair value less costs to sell Rs. 36 lakh
Value in use Rs. 32 lakh
Having regard to Ind AS 36, calculate the impairment loss to be recognised for the year ending March
31,2024.
e. Rs. 4,00,000
f. Rs. 9,00,000

g. Rs. 5,00,000

h. None of the above

Dec. 23
KOEL Ltd. acquired a machine on 1st April, 2017 for 14 crores that had an estimated useful life of 7
years. The machine is depreciated on straight line basis and does not carry any residual value. On 1st
April, 2021, the carrying value of the machine was r eassessed at 10.20 crores and the surplus arising
out of the revaluation being credited to revaluation reserve.
For the year ended March 2023, conditions indicating an impairment of the machine existed and the
amount recoverable ascertained to be only 1.58 crores.
The company had followed the policy of writing down the revaluation surplus by the increased charge
of deprecation resulting from the revaluation.
You are required to calculate the loss on impairment of the machine and show how this loss is to be
treated in the books of KOEL Ltd.
Answer:
Depreciation if no Increased charge of
Revaluation Depreciation
would have taken
place
Cost 1.4.17 14
Life 7
Depreciation 2
Carrying amount on 1.4.21 : 14 - 2 x 4 6
Revalued at 10.20
Revaluation Reserve 4.20
Depreciation Revised 10.20 / 3 3.4 2 1.4
WDV on 31.3.22 : 10.20 - 3.4 6.8
Depreciation 3.4 2 1.4
WDV on 31.3.22 : 6.8 - 3.4 3.4

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 Sanjay Welkins Classes

Recoverable Amount 1.58

Impairment Loss 1.82
IL shall be set off against RR to the extent of Balance remaining in RR after subtracting increased
charge of Depreciation.

Revaluation Surplus : 4.20

Less Increased Depreciation due to Revaluation 1.4 + 1.4 = 2.8
Balance in RR = 1.40
Out of 1.82 Lakhs of IL of 1.40 shall be debited to RR and balance 0.42 lakhs shall be debited to PL.

MTP SET 1 June 23 Term

Details for an Asset are as under: Cost of Assets Rs. 60 lakhs, Useful life period 10 years, Salvage value Rs.
4 lakhs, Useful Life remaining 3 years.
Upward revision done in last year by 50%.
Current value in use is Rs. 12 lakhs, Current selling price Rs. 11 lakhs, Current disposal cost Rs. 1 lakh.
Impairment Loss to be charged to Profit and Loss Account as per applicable Ind AS would be
a. Rs. 18.7 lakhs b. Rs. 13.2 lakhs c. Rs. 5.5 lakhs d. None of the above

Particulars Rs. in lakhs Depreciation if

no R/L would
have taken
place
Carrying Amount in the beginning of 7th year 26.40
60 – (60 – 4) × 6
10
Add: Upward Revaluation (26.4 × 50%) 13.20
Carrying Amount at the end of 7th year before Dep. 39.60

Less: Revised Depreciation = (39.6 – 4) (8.90) 5.60

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Carrying Amount in the beg. of the 8th year 30.70

(including revaluation amount of 13.2 lakhs)

Less: Current Recoverable Amount (12.00)
(being Net Selling Price or Value in use whichever is higher)
Impairment Loss 18.70
Less: Impairment Loss Charged to Revaluation Reserve (13.20)

Impairment Loss charged to Profit and Loss Account 5.50

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Ind AS 36

So, the correct answer is (c)

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