http://www.ifrsbox.com Get "Top 7 IFRS Mistakes" and e-mail updates at http://www.ifrsbox.com The objective of IAS 36 Impairment of assets is to ensure that assets are carried at no more than their recoverable amount and to define how recoverable amount is determined. This summary explains that an asset is impaired when its carrying amount exceeds its recoverable amount. Impairment loss is a difference between asset's recoverable and carrying amount. Then, an entity needs to assess the indicators of impairment at least annually, both from external and internal sources. If there is an indication of impairment, an entity must perform impairment testing and determine asset's recoverable amount. Recoverable amount represents a higher of asset's fair value less cost to sell and value in use. Fair value of an asset is determined in line with the standard IFRS 13 Fair value measurement. Value in use is the present value of the future cash flows expected to be derived from an asset or cash generating unit. This video explains how to estimate future cash flows expected from the asset and how to determine the appropriate discount rate for setting the present value. Once you have calculated the amount of your impairment loss as a difference between asset's carrying amount and it's recoverable amount, you need to recognize this impairment loss in the financial statements based on the model applied. When an entity applies cost model for the asset under review, then the impairment loss is recognized immediately in profit or loss. When an entity carries its assets under review at revalued amount (for example, in accordance with revaluation model in IAS 16), then any impairment loss shall be treated as a revaluation decrease in accordance with that standard. After the recognition of an impairment loss, it is also necessary to adjust depreciation for future periods. Sometimes it's not possible to determine recoverable amount for individual asset and therefore, you need to determine your cash generating unit that is the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. This summary also deals with the following situations: - Impairment loss of cash generating units - Impairment loss in business combinations with goodwill - Corporate assets You will also learn about reversals of impairment loss: when and how to do it. Visit my web and enjoy IFRS learning at http://www.ifrsbox.com!