1. The IFRS One-Step Impairment Framework (IAS 36)
An asset is impaired when its carrying amount exceeds its recoverable amount. At the end of each reporting period, an entity must assess whether there is any indication that an asset may be impaired. If any such indication exists, the entity must estimate the recoverable amount of the asset.
Recoverable Amount = max(Fair Value Less Costs to Sell, Value in Use)
  • Value in Use: The present value of the future cash flows expected to be derived from an asset or cash-generating unit (CGU).
  • Accounting: If the Recoverable Amount < Carrying Amount, the carrying amount is reduced to the recoverable amount, and an impairment loss is recognized immediately in profit or loss (unless the asset is carried at a revalued amount under IFRS, where the loss is treated as a revaluation decrease).

2. The US GAAP Two-Step Impairment Framework (ASC 360)
US GAAP uses a different approach based on undiscounted cash flows before measuring any actual impairment losses.
[Step 1: Recoverability Test]
Is Carrying Amount > Total UNDISCOUNTED Expected Future Cash Flows?
  ├── NO  --> No Impairment. Do nothing.
  └── YES --> Impairment exists. Proceed to Step 2.

[Step 2: Measurement of Loss]
Impairment Loss = Carrying Amount - Fair Value of the Asset

3. Reversal of Impairment Losses
  • IFRS (IAS 36): An impairment loss recognized in prior periods for an asset (other than goodwill) must be reversed if, and only if, there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognized. The increased carrying amount cannot exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized in prior years.
  • US GAAP (ASC 360): The reversal of a previously recognized impairment loss on a long-lived asset held and used is strictly prohibited. The new lower carrying value forms the asset’s new historical cost basis going forward.

 
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