Essay on Impairment Test for Asset

Impairment of Assets
1

Contents
Part A: When to take the impairment test..........................................................................3
Introduction........................................................................................................................3
Impairment Test.................................................................................................................3
Conclusion.........................................................................................................................5
Part B: Journal entries and Calculation of Impairment Loss.............................................5
References.........................................................................................................................9
2

Part A: When to take the impairment test
Introduction
An asset is said to be impaired when it has lower market price in comparison to
its value recorded in the balance sheet of a business entity. The asset impairment is
debited as a loss or expenditure during making the journal entry and is subjected to
credit for the underlying asset. The net difference between the carrying value and the
market value of an asset attributes to the impairment value (Alexander and Archer,
2008) . In this context, the present essay emphasizes on the need of undertaking an
impairment test for an asset.
Impairment Test
The IASB (International Accounting Standards Board) has adopted and
implemented IAS 36 standard for identification and measurement of impaired value of
an asset. As per the standard, a business entity is requires to conduct asset impairment
testing whenever there is any identification of impairment except for the goodwill and
intangible assets. The IAS 36 standard is applicable largely for all the assets including
property, land, equipments, goodwill and intangible assets. The standard, however, still
not applies to non-current assets for selling, financial assets measured at fair value and
inventories (Epstein and Jermakowicz, 2008). The business entities identify the need of
impairment testing through their analysis at the close of each accounting period. The
indication of asset impairment exists when its carrying value is higher than its amount
recoverable. The carrying value of an asset refers to price at which its value is recorded
3