{"id":32313,"date":"2026-07-05T19:31:33","date_gmt":"2026-07-05T14:01:33","guid":{"rendered":"https:\/\/carajput.com\/blog\/?p=32313"},"modified":"2026-07-05T19:39:09","modified_gmt":"2026-07-05T14:09:09","slug":"valuation-for-impairment-testing-guide-under-ind-as-36","status":"publish","type":"post","link":"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/","title":{"rendered":"Valuation for Impairment Testing : Guide under Ind AS 36"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_58 counter-hierarchy ez-toc-counter ez-toc-light-blue ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Page Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a4a7f9f5f6e7\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #000000;color:#000000\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #000000;color:#000000\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a4a7f9f5f6e7\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Valuation_for_Impairment_Testing_%E2%80%93_A_Comprehensive_Guide_under_Ind_AS_36\" title=\"Valuation for Impairment Testing \u2013 A Comprehensive Guide under Ind AS 36\">Valuation for Impairment Testing \u2013 A Comprehensive Guide under Ind AS 36<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#What_is_impairment_under_Ind_AS_36\" title=\"What is impairment under Ind AS 36?\">What is impairment under Ind AS 36?<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Importance_of_Impairment_Testing\" title=\"Importance of Impairment Testing\">Importance of Impairment Testing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Identifying_Indicators_of_Impairment\" title=\"Identifying Indicators of Impairment\">Identifying Indicators of Impairment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-5\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Measuring_Recoverable_Amount\" title=\"Measuring Recoverable Amount\">Measuring Recoverable Amount<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-6\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Fair_Value_Less_Costs_of_Disposal_FVLCD\" title=\" Fair Value Less Costs of Disposal (FVLCD) : \"> Fair Value Less Costs of Disposal (FVLCD) : <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-7\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Value_in_Use_VIU\" title=\" Value in Use (VIU): \"> Value in Use (VIU): <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-8\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Pre-tax_discount_rate_reflecting_market_assessments_of_time_value_and_asset-specific_risks\" title=\"Pre-tax discount rate reflecting market assessments of time value and asset-specific risks.\">Pre-tax discount rate reflecting market assessments of time value and asset-specific risks.<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-9\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Principle_of_Cash-Generating_Units_CGUs\" title=\"Principle of Cash-Generating Units (CGUs)\">Principle of Cash-Generating Units (CGUs)<\/a><\/li><\/ul><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-10\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Treatment_of_Specific_Items\" title=\"Treatment of Specific Items\">Treatment of Specific Items<\/a><ul class='ez-toc-list-level-3'><li class='ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-11\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Practical_Summary\" title=\"Practical Summary\">Practical Summary<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-12\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Goodwill_Impairment\" title=\"Goodwill Impairment\">Goodwill Impairment<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-13\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Highlights_the_fundamental_differences_between_the_two_methods_used_to_determine_the_Recoverable_Amount_under_Ind_AS_36\" title=\"Highlights the fundamental differences between the two methods used to determine the Recoverable Amount under Ind AS 36:\">Highlights the fundamental differences between the two methods used to determine the Recoverable Amount under Ind AS 36:<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-14\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Comparison_Ind_AS_36_vs_IAS_36\" title=\"Comparison: Ind AS 36 vs IAS 36\">Comparison: Ind AS 36 vs IAS 36<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-15\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Comparison_Ind_AS_36_vs_AS_28\" title=\"Comparison: Ind AS 36 vs AS 28\">Comparison: Ind AS 36 vs AS 28<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-16\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Major_Conceptual_Differences_Ind_AS_36_vs_AS_28\" title=\"Major Conceptual Differences: Ind AS 36 vs AS 28\">Major Conceptual Differences: Ind AS 36 vs AS 28<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-17\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Interview_Practical_Takeaway\" title=\"Interview \/ Practical Takeaway\">Interview \/ Practical Takeaway<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-18\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Practical_Challenges_in_India_%E2%80%93_Valuation_for_Impairment_Testing\" title=\"Practical Challenges in India &#8211; Valuation for Impairment Testing\">Practical Challenges in India &#8211; Valuation for Impairment Testing<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-3'><a class=\"ez-toc-link ez-toc-heading-19\" href=\"https:\/\/carajput.com\/blog\/valuation-for-impairment-testing-guide-under-ind-as-36\/#Conclusion\" title=\"Conclusion\">Conclusion<\/a><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\" wp-image-22244\" src=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2022\/04\/Significance-of-Business-Valuation-for-Companies.jpg\" alt=\"Significance of Business Valuation for Companies\" width=\"998\" height=\"664\" srcset=\"https:\/\/carajput.com\/blog\/wp-content\/uploads\/2022\/04\/Significance-of-Business-Valuation-for-Companies.jpg 768w, https:\/\/carajput.com\/blog\/wp-content\/uploads\/2022\/04\/Significance-of-Business-Valuation-for-Companies-300x200.jpg 300w\" sizes=\"(max-width: 998px) 100vw, 998px\" \/><\/p>\n<h2><span class=\"ez-toc-section\" id=\"Valuation_for_Impairment_Testing_%E2%80%93_A_Comprehensive_Guide_under_Ind_AS_36\"><\/span><span style=\"color: #000080;\"><strong>Valuation for Impairment Testing \u2013 A Comprehensive Guide under Ind AS 36<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ul>\n<li>In today\u2019s dynamic business environment, assets may lose value due to market disruptions, technological changes, economic slowdowns, regulatory developments, or operational inefficiencies. Financial reporting standards therefore require entities to ensure that assets are not carried in the books at amounts exceeding their recoverable values. This is where Ind AS 36 \u2013 Impairment of Assets assumes critical importance.<\/li>\n<li>Impairment testing is not merely an accounting compliance exercise; it is a strategic valuation process involving financial forecasting, risk assessment, discount rate determination, and cash flow evaluation. Proper impairment assessment enhances transparency, strengthens investor confidence, and ensures fair presentation of financial statements.<\/li>\n<\/ul>\n<h2><span class=\"ez-toc-section\" id=\"What_is_impairment_under_Ind_AS_36\"><\/span><span style=\"color: #000080;\"><strong>What is impairment under Ind AS 36?<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p>An asset is considered impaired when its carrying amount exceeds its recoverable amount. In such cases, the entity must recognize an impairment loss in its financial statements.<\/p>\n<p>The standard defines:<\/p>\n<ul>\n<li>Recoverable Amount = Higher of Fair Value Less Costs of Disposal (FVLCD), or Value in Use (VIU)<\/li>\n<li>Ind AS 36 applies to most non-financial assets, including Property, Plant &amp; Equipment; Intangible Assets; Goodwill; and Investments in Subsidiaries, Associates, and Joint Ventures in separate financial statements. However, inventories, financial instruments, deferred tax assets, biological assets, and assets held for sale are excluded from its scope.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Importance_of_Impairment_Testing\"><\/span><span style=\"color: #000080;\"><strong>Importance of Impairment Testing<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ul>\n<li>Impairment testing ensures Assets are not overstated, Losses are recognized timely, Financial statements reflect economic reality, Investors receive reliable information and Management reassesses operational performance periodically<\/li>\n<li>With increasing economic volatility and rapid technological disruptions, impairment testing has become a major area of auditor focus and regulatory scrutiny.<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Identifying_Indicators_of_Impairment\"><\/span><span style=\"color: #000080;\"><strong>Identifying Indicators of Impairment<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Ind AS 36 requires entities to assess at each reporting date whether indicators of impairment exist.<\/p>\n<p><span style=\"color: #000080;\"><strong>External Indicators<\/strong><\/span><\/p>\n<p>Some important external indicators include Significant decline in market value, Adverse technological or economic changes, an increase in market interest rates and Market capitalization lower than net assets<\/p>\n<p><span style=\"color: #000080;\"><strong>Internal Indicators<\/strong><\/span><\/p>\n<p>Internal indicators may include obsolescence or physical damage, poor operating performance, idle assets or restructuring plans, and negative internal cash flow trends. Notably, goodwill and indefinite-life intangible assets must be tested annually, irrespective of impairment indicators.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Measuring_Recoverable_Amount\"><\/span><span style=\"color: #000080;\"><strong>Measuring Recoverable Amount<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ol>\n<li>\n<h3><span class=\"ez-toc-section\" id=\"Fair_Value_Less_Costs_of_Disposal_FVLCD\"><\/span><span style=\"color: #000080;\"><strong> Fair Value Less Costs of Disposal (FVLCD) : <\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ol>\n<p>This represents the price obtainable from selling the asset in an orderly transaction between market participants, less disposal costs.<\/p>\n<p><span style=\"color: #000080;\"><strong>Valuation Approaches under Ind AS 113 : <\/strong><\/span>Entities may apply Market Approach, Cost Approach and Income Approach. The selection depends on asset nature and data availability.<\/p>\n<ol start=\"2\">\n<li>\n<h3><span class=\"ez-toc-section\" id=\"Value_in_Use_VIU\"><\/span><span style=\"color: #000080;\"><strong> Value in Use (VIU): <\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<\/li>\n<\/ol>\n<p>Value in Use is the present value of future cash flows expected from the continuing use of an asset or Cash-Generating Unit (CGU). \u00a0The VIU model typically involves Forecasting future cash inflows, estimating operating outflows, determining terminal value and applying an appropriate discount rate. This is often the more complex and judgment-intensive area of impairment testing.<\/p>\n<p><strong><span style=\"color: #000080;\">Future Cash Flow Projections:<\/span> <\/strong>Ind AS 36 prescribes specific principles regarding cash flow estimates.<\/p>\n<p><span style=\"color: #000080;\"><strong>Cash Flows to Include <\/strong><\/span>Entities should include cash inflows from continuing use, necessary operating outflows, disposal proceeds at end of useful life and maintenance capital expenditures.<\/p>\n<p><span style=\"color: #000080;\"><strong>Cash Flows to Exclude: <\/strong><\/span>The following are specifically prohibited: future uncommitted restructurings, financing cash flows, Income tax cash flows and Future enhancement expenditures unless already committed. Cash flow projections should generally be based on approved budgets for a maximum period of five years unless a longer period can be justified.<\/p>\n<p><span style=\"color: #000080;\"><strong>Discount Rate \u2013 The Core Valuation Judgment The selection<\/strong><\/span>\u00a0of a discount rate significantly impacts impairment valuation. Ind AS 36 requires use of a:<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Pre-tax_discount_rate_reflecting_market_assessments_of_time_value_and_asset-specific_risks\"><\/span><span style=\"color: #000080;\"><strong>Pre-tax discount rate reflecting market assessments of time value and asset-specific risks<\/strong>.<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Entities commonly use Weighted Average Cost of Capital (WACC), CAPM methodology and Incremental borrowing rates and The discount rate must Reflect market participant assumptions, avoid double-counting risks and remain independent of financing structure<\/p>\n<p><span style=\"color: #000080;\"><strong>Cash-Generating Units (CGUs)<\/strong><\/span><\/p>\n<p>Often, individual assets do not generate independent cash flows. In such cases, impairment testing is performed at the CGU level. A CGU is &#8220;the smallest identifiable group of assets generating largely independent cash inflows.\u201d Determining CGUs requires considerable judgment and depends on internal management monitoring, operational structure, and independent revenue generation patterns.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Principle_of_Cash-Generating_Units_CGUs\"><\/span><span style=\"color: #000080;\"><strong>Principle of Cash-Generating Units (CGUs)<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The carrying amount of a CGU should comprise only those assets that Directly belong to the CGU, or Can be allocated to the CGU on a reasonable and consistent basis, and Contribute to generating the future cash flows considered in the Value in Use (VIU) calculation. \u00a0Liabilities are generally <strong>not included<\/strong> in the CGU carrying amount unless the recoverable amount cannot be determined without considering those liabilities.<\/p>\n<h2><span class=\"ez-toc-section\" id=\"Treatment_of_Specific_Items\"><\/span><span style=\"color: #000080;\"><strong>Treatment of Specific Items<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h2>\n<ol>\n<li><strong><span style=\"color: #000080;\"> Corporate Assets:<\/span> Examples include<\/strong> head office building, common IT infrastructure, and Shared research facilities. <strong>Treatment:<\/strong> Included in the CGU carrying amount if they can be allocated on a reasonable and consistent basis.<\/li>\n<li><span style=\"color: #000080;\"><strong> Deferred Tax Assets (DTA)<\/strong><\/span>: Examples include\u00a0brought-forward business losses and absorbed depreciation benefits and treatment of excluded\u00a0from CGU carrying amount. Reason: Deferred tax assets are based on the entity&#8217;s overall tax position and are not attributable to a specific CGU&#8217;s operating cash flows. Therefore, exclude DTA from the carrying amount, Exclude DTA from recoverable amount calculation.<\/li>\n<li><strong><span style=\"color: #000080;\"> Decommissioning Liability<\/span>:<\/strong> Examples: Mine closure obligations, Asset restoration costs, Environmental remediation obligations Normal Rule: Exclude the liability from CGU carrying amount. Exception: If a buyer acquiring the CGU would necessarily assume the decommissioning obligation, then deduct liability from the CGU&#8217;s carrying amount and deduct the corresponding obligation from the value in use calculation as well. This maintains consistency between carrying amount and recoverable amount. The same liability must also be reflected in estimating the recoverable amount.<\/li>\n<li><strong><span style=\"color: #000080;\"> Pension Obligation<\/span>: <\/strong>Examples: Defined benefit gratuity obligations and pension liabilities. Treatment: Deduct from the carrying amount if the recoverable amount has been determined after considering the pension obligation. Logic : A CGU&#8217;s carrying amount and recoverable amount should be comparable. If pension liabilities are factored into the valuation\/recoverable amount, then the carrying amount should also reflect them.<\/li>\n<\/ol>\n<h3><span class=\"ez-toc-section\" id=\"Practical_Summary\"><\/span><span style=\"color: #000080;\"><strong>Practical Summary<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<table width=\"719\">\n<tbody>\n<tr>\n<td><strong>Item<\/strong><\/td>\n<td><strong>Include in CGU?<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Plant &amp; Machinery<\/td>\n<td>Yes<\/td>\n<\/tr>\n<tr>\n<td>Working Capital Assets<\/td>\n<td>Yes (where relevant)<\/td>\n<\/tr>\n<tr>\n<td>Allocable Corporate Assets<\/td>\n<td>Yes<\/td>\n<\/tr>\n<tr>\n<td>Goodwill Allocated to CGU<\/td>\n<td>Yes<\/td>\n<\/tr>\n<tr>\n<td>Deferred Tax Assets<\/td>\n<td>No<\/td>\n<\/tr>\n<tr>\n<td>General Borrowings<\/td>\n<td>No<\/td>\n<\/tr>\n<tr>\n<td>Pension Obligation<\/td>\n<td>Depending on valuation approach<\/td>\n<\/tr>\n<tr>\n<td>Decommissioning Liability<\/td>\n<td>Generally, no; include only when assumed by buyer<\/td>\n<\/tr>\n<tr>\n<td>Income Tax Liability<\/td>\n<td>No<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p>The most common error in impairment testing includes entity-level items such as deferred tax assets, corporate liabilities, and financing liabilities within the CGU carrying amount. Under Ind AS 36, only those assets and liabilities that are directly linked to the CGU&#8217;s cash flows should be considered, ensuring consistency between the carrying amount and the recoverable amount<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Goodwill_Impairment\"><\/span><span style=\"color: #000080;\"><strong>Goodwill Impairment<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Goodwill arising from business combinations must be allocated to CGUs expected to benefit from acquisition synergies. Key principles include Mandatory annual impairment testing, testing at the lowest monitored level, and no reversal of goodwill impairment permitted under Ind AS 36. This prohibition distinguishes Ind AS 36 from earlier Indian GAAP practices.<\/p>\n<p><span style=\"color: #000080;\"><strong>Recognition and Allocation of Impairment Loss<\/strong><\/span><\/p>\n<p>When impairment arises at the CGU level, goodwill is reduced first, and the remaining loss is allocated proportionately among CGU assets. However, asset values cannot be reduced below: Fair value less costs of disposal, value in use and zero. This ensures impairment allocation remains commercially reasonable.<\/p>\n<p><span style=\"color: #000080;\"><strong>Reversal of Impairment<\/strong><\/span><\/p>\n<p>Ind AS 36 permits reversal of impairment losses for assets other than goodwill if assumptions underlying prior impairment have changed. However, Reversal is capped at original carrying amount adjusted for depreciation and Goodwill impairment reversal is strictly prohibited<\/p>\n<p><span style=\"color: #000080;\"><strong>Disclosure Requirements<\/strong><\/span><\/p>\n<p>Ind AS 36 contains extensive disclosure obligations aimed at enhancing transparency. Entities must disclose Amount of impairment losses\/reversals, events triggering impairment, key assumptions used, discount rates applied, growth assumptions, and sensitivity analysis for key CGUs. Disclosure quality is increasingly becoming a focus area for auditors and regulators alike.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Highlights_the_fundamental_differences_between_the_two_methods_used_to_determine_the_Recoverable_Amount_under_Ind_AS_36\"><\/span><span style=\"color: #000080;\">Highlights the <strong>fundamental differences between the two methods used to determine the Recoverable Amount under Ind AS 36<\/strong>:<\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<table style=\"height: 574px;\" width=\"949\">\n<tbody>\n<tr>\n<td><strong>Parameter<\/strong><\/td>\n<td><strong>FVLCOD<\/strong><\/td>\n<td><strong>VIU<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Basis<\/td>\n<td>Market participant view<\/td>\n<td>Entity-specific view<\/td>\n<\/tr>\n<tr>\n<td>Valuation Objective<\/td>\n<td>Sale value<\/td>\n<td>Value from continued use<\/td>\n<\/tr>\n<tr>\n<td>Future Restructuring<\/td>\n<td>May be included<\/td>\n<td>Excluded unless committed<\/td>\n<\/tr>\n<tr>\n<td>Future Enhancements<\/td>\n<td>May be included<\/td>\n<td>Excluded until incurred<\/td>\n<\/tr>\n<tr>\n<td>Discount Rate<\/td>\n<td>Market participant rate<\/td>\n<td>Pre-tax asset-specific rate<\/td>\n<\/tr>\n<tr>\n<td>Synergies<\/td>\n<td>Limited to market participant synergies<\/td>\n<td>Entity-specific synergies allowed<\/td>\n<\/tr>\n<tr>\n<td>Primary Standard Reference<\/td>\n<td>Ind AS 113 + Ind AS 36<\/td>\n<td>Ind AS 36<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><strong><span style=\"color: #000080;\">In real-life impairment engagements:<\/span><\/strong><\/p>\n<ul>\n<li>FVLCOD is commonly used when there are market transactions, comparable company data, or disposal possibilities.<\/li>\n<li>VIU is more commonly used for operating businesses, manufacturing plants, cash-generating units, and goodwill impairment testing because management forecasts are readily available.<\/li>\n<li>The recoverable amount is always the higher of FVLCOD and VIU, ensuring that an asset is not written down if either its sale value or its value from continued use supports the carrying amount<\/li>\n<\/ul>\n<h3><span class=\"ez-toc-section\" id=\"Comparison_Ind_AS_36_vs_IAS_36\"><\/span><span style=\"color: #000080;\"><strong>Comparison: Ind AS 36 vs IAS 36<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Ind AS 36 is largely converged with IAS 36; however, some differences exist due to Indian accounting and regulatory requirements.<\/p>\n<table>\n<tbody>\n<tr>\n<td><strong>S. No.<\/strong><\/td>\n<td><strong>Difference<\/strong><\/td>\n<td><strong>Explanation<\/strong><\/td>\n<\/tr>\n<tr>\n<td>1<\/td>\n<td>Investment Property<\/td>\n<td>Paragraph 2(f) of IAS 36 has been omitted in Ind AS 36 because Ind AS 40 does not permit the fair value model in the same manner as IAS 40 and generally requires the cost model.<\/td>\n<\/tr>\n<tr>\n<td>2<\/td>\n<td>Transitional Provisions<\/td>\n<td>IAS 36 contains its own transition requirements. Ind AS 36 excludes these because transition matters are covered comprehensively by Ind AS 101 (First-time Adoption of Indian Accounting Standards).<\/td>\n<\/tr>\n<tr>\n<td>3<\/td>\n<td>Terminology Changes<\/td>\n<td>Ind AS uses Indian Companies Act terminology such as: &#8220;Balance Sheet&#8221; instead of &#8220;Statement of Financial Position&#8221; and &#8220;Statement of Profit and Loss&#8221; instead of &#8220;Statement of Comprehensive Income&#8221;. These are drafting changes and do not affect accounting treatment.<\/td>\n<\/tr>\n<tr>\n<td>4<\/td>\n<td>Impact of Ind AS 113<\/td>\n<td>Certain paragraphs of IAS 36 (Para 25-27 and 5(b)) have been deleted because the guidance relating to fair value is now covered by Ind AS 113 (Fair Value Measurement).<\/td>\n<\/tr>\n<tr>\n<td>5<\/td>\n<td>Numbering Consistency<\/td>\n<td>Paragraphs 91-95 remain numbered in Ind AS 36 even though they are deleted, to maintain consistency with IAS 36 numbering.<\/td>\n<\/tr>\n<tr>\n<td>6<\/td>\n<td>Illustrative Examples<\/td>\n<td>Certain IAS 36 illustrative examples that do not form part of the standard have not been incorporated into Ind AS 36.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<p><strong><span style=\"color: #000080;\">Practical Conclusion: Ind AS 36 vs IAS 36<\/span> : <\/strong>From an impairment testing perspective, recognition of impairment, recoverable amount determination, value in use method, goodwill testing, and CGU concepts are substantially identical between IAS 36 and Ind AS 36. Most differences are drafting, transitional, and fair-value-presentation related.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Comparison_Ind_AS_36_vs_AS_28\"><\/span><span style=\"color: #000080;\"><strong>Comparison: Ind AS 36 vs AS 28<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>The differences between Ind AS 36 and the erstwhile Indian GAAP standard AS 28 are much more significant.<\/p>\n<table>\n<tbody>\n<tr>\n<td><strong>S. No.<\/strong><\/td>\n<td><strong>Ind AS 36<\/strong><\/td>\n<td><strong>AS 28<\/strong><\/td>\n<\/tr>\n<tr>\n<td>1<\/td>\n<td>Applies to investments in subsidiaries, associates and joint ventures in separate financial statements.<\/td>\n<td>Does not apply to these investments.<\/td>\n<\/tr>\n<tr>\n<td>2<\/td>\n<td>Specifically excludes biological assets, employee benefit assets, assets held for sale, etc.<\/td>\n<td>No similar comprehensive exclusions.<\/td>\n<\/tr>\n<tr>\n<td>3<\/td>\n<td>Mandatory annual impairment testing for goodwill, indefinite-life intangibles, and intangibles not yet available for use.<\/td>\n<td>Annual testing not mandatory unless indicators exist.<\/td>\n<\/tr>\n<tr>\n<td>4<\/td>\n<td>Goodwill impairment reversal is prohibited under all circumstances.<\/td>\n<td>Reversal may be permitted in limited exceptional circumstances.<\/td>\n<\/tr>\n<tr>\n<td>5<\/td>\n<td>Goodwill allocated to CGUs benefiting from acquisition synergies.<\/td>\n<td>Uses bottom-up and top-down approaches for goodwill allocation.<\/td>\n<\/tr>\n<tr>\n<td>6<\/td>\n<td>Uses &#8220;Fair Value Less Costs of Disposal&#8221;.<\/td>\n<td>Uses &#8220;Net Selling Value&#8221;.<\/td>\n<\/tr>\n<tr>\n<td>7<\/td>\n<td>Extensive disclosure requirements including sensitivity analysis and goodwill disclosures<\/td>\n<td>Comparatively limited disclosures.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h3><span class=\"ez-toc-section\" id=\"Major_Conceptual_Differences_Ind_AS_36_vs_AS_28\"><\/span><span style=\"color: #000080;\"><strong>Major Conceptual Differences: Ind AS 36 vs AS 28<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<ol>\n<li><span style=\"color: #000080;\"><strong> Annual Goodwill Testing :<\/strong><\/span><\/li>\n<\/ol>\n<ul>\n<li>Ind AS 36 : Goodwill must be tested every year irrespective of whether any impairment indicators exist.<\/li>\n<li>AS 28 : Testing was generally indicator-based and less stringent. Implication: Ind AS creates a more rigorous impairment regime.<\/li>\n<\/ul>\n<ol start=\"2\">\n<li><strong><span style=\"color: #000080;\"> Reversal of Goodwill Impairment: Ind AS 36<\/span>: <\/strong>Once goodwill is impaired Impairment loss can never be reversed.<\/li>\n<\/ol>\n<ul>\n<li>AS 28: Reversal was permitted in rare exceptional situations where the original impairment arose from a one-off external event. Exam Point: This is one of the most frequently tested distinctions.<\/li>\n<\/ul>\n<ol start=\"3\">\n<li><span style=\"color: #000080;\"><strong> Recoverable Amount Terminology<\/strong><\/span><\/li>\n<\/ol>\n<ul>\n<li>Ind AS 36: Recoverable Amount = Higher of Fair Value Less Costs of Disposal (FVLCOD) and Value in Use (VIU)<\/li>\n<li>AS 28 : Recoverable Amount = Higher of Net Selling Value and Value in Use. Fair Value under Ind AS is aligned with Ind AS 113 and market participant assumptions, making the framework more robust.<\/li>\n<\/ul>\n<ol start=\"4\">\n<li><span style=\"color: #000080;\"><strong> Disclosure Requirements<\/strong><\/span><\/li>\n<\/ol>\n<ul>\n<li>Ind AS 36 requires detailed disclosures such as CGU-wise impairment, discount rate used, growth rates, key assumptions, goodwill allocation, and sensitivity analysis. AS 28 required much less granular disclosure.<\/li>\n<\/ul>\n<p><span style=\"color: #000080;\"><strong>Quick Revision <\/strong><\/span><\/p>\n<table style=\"height: 462px;\" width=\"970\">\n<tbody>\n<tr>\n<td><strong>Particulars<\/strong><\/td>\n<td><strong>IAS 36<\/strong><\/td>\n<td><strong>Ind AS 36<\/strong><\/td>\n<td><strong>AS 28<\/strong><\/td>\n<\/tr>\n<tr>\n<td>Annual Goodwill Test<\/td>\n<td>Yes<\/td>\n<td>Yes<\/td>\n<td>No<\/td>\n<\/tr>\n<tr>\n<td>Goodwill Reversal<\/td>\n<td>No<\/td>\n<td>No<\/td>\n<td>Allowed in limited cases<\/td>\n<\/tr>\n<tr>\n<td>FVLCOD Concept<\/td>\n<td>Yes<\/td>\n<td>Yes<\/td>\n<td>No<\/td>\n<\/tr>\n<tr>\n<td>Investments in Subsidiaries Covered<\/td>\n<td>Yes<\/td>\n<td>Yes<\/td>\n<td>No<\/td>\n<\/tr>\n<tr>\n<td>Extensive Disclosure<\/td>\n<td>Yes<\/td>\n<td>Yes<\/td>\n<td>Limited<\/td>\n<\/tr>\n<tr>\n<td>Based on CGU Concept<\/td>\n<td>Yes<\/td>\n<td>Yes<\/td>\n<td>Limited application<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h3><span class=\"ez-toc-section\" id=\"Interview_Practical_Takeaway\"><\/span><span style=\"color: #000080;\"><strong>Interview \/ Practical Takeaway<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>For professionals working under Ind AS, the most important operational changes from AS 28 are Mandatory annual impairment testing of goodwill, No reversal of goodwill impairment, Use of Fair Value Less Costs of Disposal instead of Net Selling Value, Greater reliance on valuation techniques (DCF, market approach, fair value hierarchy) and much more extensive disclosure and documentation requirements. These changes make Ind AS 36 substantially closer to global IFRS practices under IAS 36.<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Practical_Challenges_in_India_%E2%80%93_Valuation_for_Impairment_Testing\"><\/span><span style=\"color: #000080;\"><strong>Practical Challenges in India &#8211; Valuation for Impairment Testing<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Some common practical difficulties faced by companies include Determining reliable cash flow forecasts, Selection of suitable peer-based discount rates, Identifying appropriate CGUs, evaluating long-term growth assumptions, Performing sensitivity analysis and assessing impairment during economic uncertainty. Accordingly, impairment testing frequently requires collaboration between Finance teams, Valuation specialists, auditors, and Strategic management<\/p>\n<h3><span class=\"ez-toc-section\" id=\"Conclusion\"><\/span><span style=\"color: #000080;\"><strong>Conclusion<\/strong><\/span><span class=\"ez-toc-section-end\"><\/span><\/h3>\n<p>Impairment testing under Ind AS 36 is far more than an accounting formality. It is an integrated valuation exercise combining finance, economics, forecasting, and strategic assessment. Robust impairment analysis helps organizations improve governance, enhance reporting credibility, align asset values with economic realities, and build investor trust.<\/p>\n<p>As businesses continue to face rapid market changes, geopolitical uncertainties, and technological disruptions, effective impairment testing will remain one of the most critical aspects of financial reporting and valuation practice. <em>For professional assistance in impairment valuation, CGU assessment, WACC determination, financial modeling, and Ind AS advisory, connect with Rajput Jain &amp; Associates.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Valuation for Impairment Testing \u2013 A Comprehensive Guide under Ind AS 36 In today\u2019s dynamic business environment, assets may lose value due to market disruptions, technological changes, economic slowdowns, regulatory developments, or operational inefficiencies. Financial reporting standards therefore require entities to ensure that assets are not carried in the books at amounts exceeding their recoverable &hellip;<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[258],"tags":[10493],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/32313"}],"collection":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/comments?post=32313"}],"version-history":[{"count":4,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/32313\/revisions"}],"predecessor-version":[{"id":32316,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/posts\/32313\/revisions\/32316"}],"wp:attachment":[{"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/media?parent=32313"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/categories?post=32313"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/carajput.com\/blog\/wp-json\/wp\/v2\/tags?post=32313"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}