Ind AS 36: Asset Impairment Accounting Entries

When an impairment loss is recognized under Ind AS 36, the accounting entries depend entirely on whether the asset is carried under the Cost Model or the Revaluation Model.

Here are the precise journal entries required to record an impairment loss and its subsequent impact.

1. Under the Cost Model (Standard Scenario)

If the asset is carried at cost less accumulated depreciation, the entire impairment loss is recognized immediately in the Statement of Profit and Loss.

Journal Entry:

Plaintext

Dr. Profit & Loss Statement (Impairment Loss Expense)
    Cr. To Accumulated Impairment Losses (or Asset Account)

(Being the impairment loss recognized to reduce the carrying amount of the asset to its recoverable amount.)

Note on Balance Sheet Presentation: The “Accumulated Impairment Losses” account is a contra-asset account, deducted from the gross block of the asset alongside accumulated depreciation.

2. Under the Revaluation Model

If the asset is carried at a revalued amount (e.g., under Ind AS 16 or Ind AS 38), the impairment loss is treated as a revaluation decrease. It must first knock out any existing revaluation surplus sitting in Equity (Other Comprehensive Income) for that specific asset before the excess hits the P&L.

Journal Entry:

Plaintext

Dr. Revaluation Surplus / Reserve (OCI)  [Up to the balance available for that asset]
Dr. Profit & Loss Statement             [For the remaining unabsorbed balance, if any]
    Cr. To Accumulated Impairment Losses (or Asset Account)

(Being the impairment loss adjusted against the revaluation surplus first, and the balance charged to the P&L.)

3. Allocation of Impairment Loss within a CGU

When an entire Cash-Generating Unit (CGU) is impaired, the loss is systematically allocated across the unit’s assets. You must write off Goodwill first before touching other assets pro-rata.

Journal Entry:

Plaintext

Dr. Profit & Loss Statement (Total Impairment Loss)
    Cr. To Goodwill                                [Wiped out first] [cite: 152]
    Cr. To Accumulated Impairment - Building        [Pro-rata share] [cite: 153]
    Cr. To Accumulated Impairment - Plant & Mach.  [Pro-rata share] [cite: 153]

(Being the CGU impairment loss allocated first to goodwill and then to other long-lived assets on a pro-rata basis.)

4. Post-Impairment Impact: Adjusting Depreciation

Recognizing an impairment loss changes the asset’s carrying value permanently. Therefore, you do not use the old depreciation schedule. The depreciation charge must be adjusted prospectively over its remaining useful life.

Revised Annual Depreciation =(Revised Carrying Amount – Residual Value) \ Remaining Useful Life

Subsequent Year Journal Entry:

Plaintext

Dr. Depreciation Expense
    Cr. To Accumulated Depreciation

(Being the depreciation charge recorded prospectively based on the asset’s new, lower carrying amount.)

5. Reversal of Impairment Loss (Except Goodwill)

If market conditions improve and an impairment loss reverses in a later period (for individual assets or a CGU), the asset value is restored. Remember: Goodwill impairment can never be reversed.

Journal Entry (Cost Model):

Plaintext

Dr. Accumulated Impairment Losses (or Asset Account)
    Cr. To Profit & Loss Statement (Gain on Reversal)

(Being the reversal of prior impairment loss recognized in the P&L, capped at the carrying amount that would have existed net of normal depreciation.)