Impairment indicators for fixed assets: a practical year-end review under Ind AS 36 and AS 28

Two different obligations

Impairment is often described as a once-a-year test. For property, plant and equipment that is not quite right. Ind AS 36 paragraph 9 requires an entity to assess, at the end of each reporting period, whether there is any indication that an asset may be impaired. Only if an indication exists does the entity estimate the recoverable amount and compare it with the carrying amount.

The annual test regardless of indicators applies to a narrower group: goodwill, intangible assets with an indefinite useful life, and intangible assets not yet available for use (paragraph 10). For machinery, buildings, vehicles and IT equipment, the year-end obligation is the indicator review. AS 28, which applies to companies not on Ind AS, follows the same structure.

The indicator review is quick to do and easy to skip. Auditors increasingly ask to see it documented, even when the conclusion is that there are no indicators. This article sets out how to run it.

The indicators the standard lists

Ind AS 36 paragraph 12 gives a minimum list. It is not exhaustive, so other information can also be an indicator.

External sources:

• Observable indications that the asset's value has declined during the period significantly more than would be expected from the passage of time or normal use
• Significant changes with an adverse effect on the entity in the technological, market, economic or legal environment in which it operates, or in the market to which an asset is dedicated
• Increases in market interest rates or other market rates of return that are likely to affect the discount rate used in calculating value in use and decrease the recoverable amount materially
• The carrying amount of the entity's net assets being more than its market capitalisation

Internal sources:

• Evidence of obsolescence or physical damage of an asset
• Significant changes with an adverse effect on the entity in the extent to which, or manner in which, an asset is used or expected to be used. These include the asset becoming idle, plans to discontinue or restructure the operation to which it belongs, plans to dispose of the asset before the previously expected date, and reassessing the useful life of an intangible asset as finite rather than indefinite
• Evidence from internal reporting that the economic performance of an asset is, or will be, worse than expected

AS 28 lists essentially the same external and internal indicators.

Turning the list into evidence

A useful review links each indicator to a source of information that someone in the company already has. For example:

• Physical damage: damage reports, insurance claims, and assets marked Damaged in the last physical verification
• Obsolescence: technology changes reported by engineering or IT; for example, network equipment in telecommunications, or production lines built for a product that has been discontinued
• Idle assets: utilisation reports, assets with no maintenance activity and no production output, plants or lines shut for an extended period
• Plans to dispose or restructure: board minutes, approved restructuring plans, assets proposed for disposal
• Worse performance: budgets against actuals by plant or business unit, operating losses, maintenance costs well above plan
• Market changes: loss of a major customer, a regulatory change affecting a product, a fall in prices for the output
• Interest rates and market capitalisation: for listed companies, compare net assets with market capitalisation at the reporting date

Document the conclusion for each indicator, even if it is "not applicable" or "no evidence", and keep the supporting reports with the working. This is the evidence the auditor will ask for in the year-end file. See the audit PBC list for the rest.

Indicators also trigger a review of life and residual value

Ind AS 36 paragraph 17 notes that even if an indicator does not result in an impairment loss, it may indicate that the remaining useful life, the depreciation method or the residual value should be reviewed and adjusted under Ind AS 16. An idle machine that is expected to come back into use may not be impaired, but its life and residual value deserve a fresh look. Any change is accounted for prospectively as a change in estimate.

When an indicator exists: the test in outline

If an indicator exists, the entity estimates the recoverable amount of the asset. The recoverable amount is the higher of:

• Fair value less costs of disposal (under AS 28, the equivalent concept is net selling price), and
• Value in use, the present value of the future cash flows expected from the asset.

If the recoverable amount is lower than the carrying amount, the difference is an impairment loss, recognised in profit or loss (or against a revaluation surplus for a revalued asset to the extent of that surplus).

Most fixed assets do not generate cash flows on their own. A single machine on a production line does not have independent cash inflows; the line or the plant does. In that case the test is done at the level of the cash-generating unit: the smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups. Defining CGUs is a significant judgement, and the same CGUs should be used from year to year unless there is a justified change. For a hotel group, each hotel is often a CGU; for a telecom operator, the analysis is usually at a much higher level of aggregation because the network operates as a whole. These are examples, not rules: agree the CGU structure with your auditor.

Value in use calculations involve cash-flow projections, a discount rate and a terminal growth assumption. They are sensitive to all three. Companies frequently involve valuation specialists for material CGUs.

After the loss: depreciation and reversal

After an impairment loss is recognised, depreciation for future periods is based on the revised carrying amount, less residual value, over the remaining useful life (Ind AS 36 paragraph 63).

At each later reporting date, the entity assesses whether there is any indication that an impairment loss recognised in prior periods for an asset other than goodwill may no longer exist or may have decreased (paragraph 110). If so, the recoverable amount is re-estimated, and the loss may be reversed, but only up to the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised. Under Ind AS 36, an impairment loss recognised for goodwill is never reversed. The rules for goodwill under AS 28 differ in detail, so check them if they apply to you.

What the register needs to hold

Impairment adds information that a basic register does not carry:

• Accumulated impairment, separately from accumulated depreciation, so the Schedule III reconciliation can show impairment losses and reversals by class
• The CGU each asset belongs to
• The carrying amount that would have applied without impairment, to cap any future reversal
• A dated history of each impairment and reversal, with the supporting working attached

How FixedAsset Pro helps

Financial Management in FixedAsset Pro records impairment as a document with a preview, submit, cancel and reverse, supports cash-generating units, and keeps a value history on every asset. In the web edition these are available today; on the desktop edition, revaluation and impairment are planned. For the indicator review, AI Asset Intelligence produces a replacement-review list of assets past their useful life, costly to maintain or often down, with the evidence, and Maintenance and AMC holds the downtime and work-order history. These help you find candidates; the judgement on whether an indicator exists, and the test itself, remain management's.

This article is general information as at October 2026, not accounting advice. Identifying indicators, defining cash-generating units and estimating recoverable amounts involve significant judgement; discuss them with your auditor.