critically evaluate the extent to which the required treatment of impairment of assets, as laid down...

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critically evaluate the extent to which the required treatment of impairment of assets, as laid down in IAS 36 entitled impairment of asset, satisfies the fundamental qualitative characteristics of relevance and faithful representation contained in the conceptual framework for the preparation and presentation of financial statements.

David · Accepted Answer

Impairment 
Impairment can be defined as the unexpected or immediate reduction in the utility of a fixed 
asset like property, vehicle, factory etc. The reason behind impairment is physical damage to 
asset, obsolescence because of technological innovations or due to the changes in legal 
requirements. 
IFRS (IAS 36) – Impairment of Assets 
IAS 36 Impairment of Assets makes sure that an entity's assets are not shown at an amount 
greater than their recoverable amount (i.e. the higher of fair value as reduced by selling cost and 
value in use). The exception to this rule is goodwill and certain intangible assets for which an 
annual impairment test is needed, entities are supposed to undertake impairment tests where 
there is a signal of impairment of an asset, and the test may be undertaken for a 'cash-generating 
unit' where an asset is not able to produce cash inflows that are highly independent of those from 
other assets. IAS 36 was reissued in March 2004 and applies to annual periods beginning on or 
after 1 January 2005. 
Identification of Impairment Loss: 
The entity is required to ascertain at balance sheet date whether there exists any indication of an 
asset being impaired. If there is no signal of an asset being impaired, then the following assets 
shall be tested for impairment:

critically evaluate the extent to which the required treatment of impairment of assets, as laid down in IAS 36 entitled impairment of asset, satisfies the fundamental qualitative characteristics of...

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