Recoverable Amount

The IFRS standard that establishes procedures to ensure assets are carried at no more than their recoverable amount — the higher of fair value less costs of disposal and value in use. IAS 36 requires impairment testing whenever there is an indication of impairment, and at least annually for goodwill and intangible assets with indefinite useful lives.

The mandatory annual assessment (and more frequent assessment when indicators exist) of whether the carrying amount of goodwill exceeds its recoverable amount. Under IAS 36, goodwill is tested at the cash generating unit level by comparing the unit's carrying amount (including allocated goodwill) with its recoverable amount.

A reduction in the reported value of an asset on the balance sheet, typically triggered by impairment testing that reveals the asset's carrying amount exceeds its recoverable amount. Goodwill and other intangible asset write-downs often signal that the expected future benefits from a prior acquisition or investment have not materialised.

The price that would be received to sell an asset or cash generating unit in an orderly transaction between market participants (IFRS 13), less the costs of disposal. Under IAS 36, it is one of two measures used to determine the recoverable amount for impairment testing.

A reduction in the carrying amount of an asset when its recoverable amount falls below that carrying amount. Under IAS 36, goodwill, indefinite-life intangibles and intangibles not yet available for use are tested every year, other assets only when there is an indication of impairment; under FRS 102 all assets, including goodwill, are tested only on indication.

The present value of the future cash flows expected to be derived from an asset or cash generating unit, calculated using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Under IAS 36, value in use is one of two measures (alongside fair value less costs of disposal) used to determine recoverable amount for impairment testing.

The US GAAP standard governing the recognition, measurement, and impairment of long-lived tangible and certain intangible assets. ASC 360 requires a two-step impairment test: first, a recoverability test comparing undiscounted future cash flows to carrying value; second, if impairment is indicated, measurement of the loss as the excess of carrying value over fair value.

The level of revenue at which total costs equal total income, resulting in neither profit nor loss. For growth businesses, understanding break-even informs decisions about pricing, unit economics, and the capital required to reach profitability.

What is goodwill impairment and when does it occur?

Goodwill impairment occurs when the fair value of a business unit (cash-generating unit) falls below its carrying amount — goodwill is written down, reducing reported earnings.

How do you test goodwill for impairment under current accounting standards?

Goodwill impairment testing compares the carrying amount of a cash-generating unit to its recoverable amount (higher of fair value less costs to sell and value-in-use), with any shortfall recognised as an impairment loss.

How does IAS 36 impairment testing work for intangible assets?

IAS 36 requires comparing the carrying amount of an asset or cash-generating unit to its recoverable amount (the higher of fair value less disposal costs and value-in-use). If carrying exceeds recoverable, an impairment loss is recognised.