[Opinion] Ind AS 36 Impairment Testing: A Practical Valuation Guide

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Last Updated on 24 June, 2026

Ind AS 36 Impairment Testing

CA Gaurav Sukhija – [2026] 187 taxmann.com 836 (Article)

Impairment of assets is one of the few accounting areas where a single management judgement can move the profit and loss account by hundreds of crores. Ind AS 36 is therefore not just a compliance exercise, it is a discipline that affects reported earnings, covenant headroom, deal valuations and the audit conversation. This article sets out, what Ind AS 36 requires, how the underlying valuation actually works, and the mistakes that most often invite an audit qualification.

1. What impairment means, and why it matters

An asset is impaired when its carrying amount exceeds its recoverable amount. The carrying amount is simply the net book value i.e. cost less accumulated depreciation and any earlier impairment. The recoverable amount is the higher of two measures: Fair Value Less Costs of Disposal (FVLCD) and Value in Use (VIU). Where the carrying amount is higher, the difference is an impairment loss and must be recognised immediately in the profit and loss account.

The reason this matters to the finance function goes well beyond ticking a box. Impairment keeps the balance sheet honest, so that stakeholders are not looking at overstated assets. It is a regulatory requirement for every entity applying Ind AS, and a missed test invites scrutiny and auditor qualifications. It is also a signal, an impairment charge often points to an over-priced acquisition, a failing business unit or a quality-of-earnings problem, which is exactly why goodwill and intangible impairment is a red flag in buy-side due diligence. Finally, because an impairment loss is generally not deductible under the Income-tax Act, 1961, it creates a permanent difference that the tax and structuring team has to live with.

2. When is an impairment test required?

Ind AS 36 splits assets into two camps. Some assets must be tested every year regardless of whether anything looks wrong; the rest are tested only when an indicator appears.

3. Assets requiring Mandatory Annual Impairment Testing

Certain assets are considered particularly susceptible to impairment or cannot be assessed based solely on the passage of time. Accordingly, Ind AS 36 requires these assets to be tested for impairment at least once every year, irrespective of whether any indication of impairment exists:

Goodwill acquired in a business combination as goodwill is not amortised under Ind AS, so an annual test is mandatory, and it must be allocated to cash-generating units.
Intangible assets with an indefinite useful life, for example, brands, mastheads or perpetual licences.
Intangible assets not yet available for use, i.e. assets still under development, must be tested annually irrespective of indicators.

The annual test may be carried out at any point in the year, but it must be done at the same time each year.

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The statutory material is obtained only from the authorized and reliable sources
All the latest developments in the judicial and legislative fields are covered
Prepare the analytical write-ups on current, controversial, and important issues to help the readers to understand the concept and its implications
Every content published by Taxmann is complete, accurate and lucid
All evidence-based statements are supported with proper reference to Section, Circular No., Notification No. or citations
The golden rules of grammar, style and consistency are thoroughly followed
Font and size that's easy to read and remain consistent across all imprint and digital publications are applied

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[Opinion] Ind AS 36 Impairment Testing: A Practical Valuation Guide

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