Lesson 3 of 8 · All lessons in this module
- Intangible assets: definition, purchase and business combinations
- Internally developed intangibles and capitalising versus expensingVideo lesson
- Impairment of PPE and intangiblesVideo lesson
- Assets held for sale and impairment reversals
- Derecognition: sale, abandonment, exchange and spin-offVideo lesson
- Disclosures for PPE and intangible assets
- Fixed asset turnover, asset age and reinvestmentVideo lesson
- Integrated cases: a purchase price allocation and the PPE note
Lesson 3 of 8 · 14 min
Impairment of PPE and intangibles
An asset is impaired when its carrying amount is more than can be recovered from it; IFRS tests and measures in one step against the recoverable amount, while US GAAP first checks undiscounted cash flows and then writes down to fair value.
In short
- Depreciation and amortisation allocate cost as planned; an impairment reflects an unexpected fall in an asset's value below its carrying amount.
- PPE and finite-life intangibles are tested only when there is an indication of impairment; indefinite-life intangibles and goodwill are tested at least annually.
- IFRS: loss = carrying amount − recoverable amount, where recoverable amount = higher of fair value less costs to sell and value in use (PV of future cash flows).
- US GAAP: if carrying amount > undiscounted future cash flows, it is not recoverable; loss = carrying amount − fair value.
- An impairment cuts assets, equity and net income now, does not affect operating cash flow, and lowers future depreciation.
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