Impairment of Assets

Impairment of Assets

Impairment is a situation where the carrying amount of an assets exceeds its market value or value in use . The asset is to be impaired and adjusted for the impairment effect.

Market value is simply the market price prevailing in the market for the same asset.

The value in use is the present value of future cash flow expected to result from the use of assets. There are many indication which require that asset need to be tested for impairment.

Types of indication for impairment of Assets

There are mainly two types of indication of impairment of asset . one is internal indications and other is external indications. The internal indications include the damage to the property, heavy losses,  employee turnover. The external indication includes the decline in market value of asset and adverse economic conditions.

Accounting Treatment of Impairment of Assets

The carrying amount of assets is compared with market value or value in use ( whichever is lower) and any excess amount is charged to profit and loss account.

However if any amount is available in revaluation surplus then the excess may be adjust against such amount to the extent of surplus available.