Ind AS 36 (Impairment of Assets) is the Indian Accounting Standard that requires entities to ensure assets are not carried above their recoverable amount and to recognise impairment losses promptly.

The Ministry of Corporate Affairs (MCA) notified Ind AS 36 via the Companies (Indian Accounting Standards) Rules, 2015. It became mandatory from 1 April 2016 for Phase I companies. Ind AS 36 supersedes AS 28 for entities required to apply Ind AS.

For FY 2026-27, impairment testing remains critical for acquisition-heavy companies. The National Financial Reporting Authority (NFRA) has flagged inadequate sensitivity disclosures in goodwill impairment tests as a recurring compliance gap.

Ind AS 36 at a Glance

Ind AS 36 establishes the principle that assets must not be carried at more than their recoverable amount. This standard primarily serves statutory auditors, CFOs, and finance teams in listed and large unlisted companies applying Indian Accounting Standards.

What is Ind AS 36: Impairment of Assets?

Ind AS 36 sets out how an entity must assess whether its assets have suffered impairment and how to measure and recognise any resulting loss. The core principle is that no asset should be carried in the balance sheet at an amount higher than its recoverable value.

The Institute of Chartered Accountants of India (ICAI) introduced this standard as part of India's convergence with International Financial Reporting Standards (IFRS), specifically aligning with IAS 36. It replaced the earlier Indian GAAP standard, bringing detailed guidance on cash-generating units and annual testing for goodwill.

Finance teams preparing financial statements under the Companies Act, statutory auditors conducting audits under SA 700, and CA Final students all refer to this standard when addressing asset impairment questions.

Objective of Ind AS 36

The objectives of Ind AS 36 are:

• Specify procedures ensuring assets are not carried above their recoverable amount.
• Define when an entity must review carrying amounts and how it determines recoverable amounts.
• Establish disclosure requirements so users understand recognised impairment losses, their causes, and key assumptions used.

These objectives support the true and fair view principle mandated by Section 129 of the Companies Act, 2013. By enforcing timely recognition and transparent disclosure of impairments, Ind AS 36 upholds reliability in corporate financial reporting.

Who Must Apply Ind AS 36?

Entities covered

Ind AS 36 applies to all companies required to follow Indian Accounting Standards as per the Ministry of Corporate Affairs roadmap:

Scope exclusions

Ind AS 36 does not apply to:

• Inventories (Ind AS 2)
• Contract assets/costs relating to contracts with customers (Ind AS 115)
• Deferred tax assets (Ind AS 12)
• Employee benefit assets (Ind AS 19)
• Financial assets within scope of Ind AS 109
• Investment property at fair value (Ind AS 40)
• Biological assets at fair value less costs to sell (Ind AS 41)
• Non-current assets held for sale (Ind AS 105)

When the standard does not apply

Each exclusion above is covered by a sister standard:

Inventories use net realisable value under Ind AS 2; contract-related assets follow revenue recognition rules in Ind AS 115; deferred tax assets are governed by recognition tests in Ind AS 12; employee benefit plan assets fall under measurement rules in Ind AS 19; financial instruments are tested for impairment per ECL model in Ind AS 109; investment property at fair value uses fair value model per Ind AS 40; biological assets apply measurement rules in Ind AS 41; non-current assets held for sale use fair value less costs to sell as per classification requirements in Ind AS 105.

Key Definitions under Ind AS 36

Recognition and Measurement under Ind AS 36

When to recognise

An entity assesses at each reporting date whether any indication exists that an asset may be impaired (Para 9). If such indicators exist, such as adverse changes in market demand or physical damage, the entity estimates the asset’s recoverable amount. For goodwill, intangible assets with indefinite useful lives, or intangibles not yet available for use, annual impairment testing is mandatory regardless of indicators.

Common external indicators include significant decline in asset market value or adverse regulatory changes. Internal indicators include obsolescence or evidence that economic performance will be worse than expected.

Initial measurement

When an indicator triggers testing or annual testing is required:

**Recoverable Amount = Higher of**

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- Fair Value Less Costs of Disposal (FVLCD), **or**

- Value In Use (VIU)

Fair value less costs of disposal reflects exit price less necessary selling expenses based on observable market data where possible. Value in use is calculated as present value of estimated future cash flows expected from continuing use plus eventual disposal using a pre-tax discount rate reflecting current market assessments specific to the asset’s risks.

Cash flow projections normally cover up to five years unless longer periods are justified by management’s best estimates. Growth rates beyond five years cannot exceed long-term industry averages.

Subsequent measurement

If carrying amount exceeds recoverable amount, the entity recognises an impairment loss immediately, usually through profit or loss unless prior revaluation surplus exists for that asset class.

For individual assets outside a CGU structure:

Carrying amount is reduced directly against accumulated depreciation/amortisation down to recoverable amount.

For CGUs:

The loss is allocated first against goodwill allocated to that CGU; any remainder is then spread pro rata across other CGU assets based on their carrying values but never reducing any asset below its own FVLCD/VIU/zero threshold.

Reversal:

Impairment losses other than those on goodwill may be reversed if there has been a change in estimates used previously, however reversal cannot increase carrying amount above what it would have been had no previous impairment occurred. Goodwill impairments cannot be reversed subsequently per Para 124.

Cash‑Generating Unit Identification and Goodwill Allocation

When an asset does not generate largely independent cash inflows, such as corporate headquarters buildings or shared production lines, the entity identifies the smallest CGU where independent inflows can be measured reliably (Para 22).

Goodwill acquired through business combinations must be allocated on acquisition date across relevant CGUs expected to benefit from synergies arising from integration. Each such CGU containing goodwill undergoes annual impairment testing regardless of indicators present.

If an impairment loss arises within a CGU containing goodwill:

Allocate first entirely against goodwill.

Allocate remaining loss pro rata across other identifiable CGU assets.

No individual asset’s carrying amount can fall below its own FVLCD/VIU/zero threshold during allocation process.

This approach ensures rigorous identification and timely recognition, especially critical during economic downturns or post-acquisition periods where synergies may not materialise as planned.

Worked Examples on Ind AS 36

Example 1: Goodwill impairment test for a CGU

Scenario:

Sundaram Holdings Ltd acquired Aravind Logistics Pvt Ltd in FY 2023 recognising Rs 25 crore goodwill attributed entirely to one CGU. As at March 31st 2026:

Carrying amount including goodwill = Rs 80 crore

Recoverable amount = Rs 70 crore

Computation Table:

Journal Entry:

Dr Impairment Loss (P&L) ₹10 crore

Cr Accumulated Impairment, Goodwill ₹10 crore

Goodwill after adjustment stands at ₹15 crore. This impairment loss on goodwill is permanent, subsequent reversal is prohibited by Para 124.

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Example 2: Plant impairment based on value in use

Scenario:

Krishna Steel Industries owns a rolling mill recorded at Rs 60 crore as on March 31st 2026. Industry overcapacity triggers impairment review:

Projected future cash flows = Rs 8 crore annually × 5 years

Terminal value = Rs 30 crore

Pre-tax discount rate = 14%

FVLCD estimated by valuer = Rs 45 crore

Computation Table:

Journal Entry:

Dr Impairment Loss (P&L) ₹15 crore

Cr Accumulated Impairment, Plant ₹15 crore

Disclosure must include key assumptions such as discount rate used and sensitivity analysis around projected cash flows per Para 130(g).

Disclosure Requirements under Ind AS 36

Schedule III to the Companies Act, 2013, and Ind AS 36 require detailed disclosures to ensure transparency around impairment testing, underlying assumptions, and the impact on financial statements. These disclosures enable users to assess both the magnitude and rationale for impairment losses or reversals.

Auditors must verify these disclosures as part of their opinion on true and fair presentation under SA 700.

Common Mistakes & Industry-Specific Considerations

Common errors auditors flag

• Failure to perform annual impairment testing for goodwill and indefinite-life intangibles regardless of indicators.
• Using post-tax discount rate instead of pre-tax for value-in-use computation.
• Including future restructuring costs or capital expenditure to enhance asset performance in cash flow projections (must use asset's current condition).
• Reversing goodwill impairment in subsequent periods (prohibited under Para 124).
• Incorrect identification of CGU at too high a level, masking individual asset impairments.
• Including financing cash flows in value-in-use computation (must use cash flows before financing and tax).

Industry application notes

Acquisition-heavy companies must allocate goodwill across multiple cash-generating units (CGUs). Each CGU containing goodwill is subject to annual impairment testing. The National Financial Reporting Authority (NFRA) has highlighted that many companies provide inadequate sensitivity analyses in their goodwill impairment disclosures.

Real estate developers should note that unsold inventory is covered by Ind AS 2 (net realisable value test), not Ind AS 36. However, property, plant, and equipment used for development projects falls within Ind AS 36’s scope. Clear boundary identification is essential.

Cyclical industries such as steel, cement, or textiles often face industry downturns that create impairment indicators. Management must base CGU-level cash flow projections on board-approved business plans with explicit sensitivity to commodity price assumptions.

Ind AS 36 vs AS 28 vs IFRS: Key Differences

The table below compares major aspects across Indian GAAP (AS 28), Ind AS 36, and IFRS (IAS 36):

Ind AS 36 closely aligns with IAS 36 issued by the International Accounting Standards Board (IASB). The main carve-outs relate to additional guidance on CGU identification and disclosure requirements tailored for Indian regulatory needs. India’s approach ensures greater comparability with global reporting while addressing local audit risks.

Latest Amendments to Ind AS 36 (FY 2026-27)

No amendments have been notified to Ind AS 36 for FY 2026-27 as of 2026-05-02. The standard continues to apply in its existing form.

Related Standards You Should Know

• [Ind AS 16](/ind-as-16-property-plant-and-equipment/), PPE within Ind AS 36 scope; impairment assessed at each reporting date.
• [Ind AS 38](/ind-as-38-intangible-assets/), Intangible assets within Ind AS 36 scope; annual testing for indefinite-life intangibles.
• [Ind AS 103](/ind-as-103-business-combinations/), Goodwill arising from business combinations is tested under Ind AS 36.
• [Ind AS 116](/ind-as-116-leases/), Right-of-use assets within Ind AS 36 scope.
• [AS 28](/as-28-impairment-of-assets/), Equivalent impairment standard for non-Ind AS companies.

Need Help with Ind AS 36 Compliance?

Patron Accounting LLP supports listed companies, large unlisted entities, NBFCs, and mid-market businesses with full-scope Ind AS 36 compliance. Our team combines statutory audit experience with technical advisory across sectors where impairment triggers are frequent.

Our services include:

• Statutory Audit
• Ind AS Advisory
• Financial Reporting & Schedule III
• Disclosure Review

Schedule a 30-minute consultation with our Ind AS team, Pune · Mumbai · Delhi · Gurugram.

About This Article

Reviewed by CA & CS Team · Patron Accounting LLP

Technical reviewer: CA Sundram Gupta, FCA

Last reviewed: 2026-05-02

Sources: ICAI Compendium of Accounting Standards · MCA Notification (Companies (Indian Accounting Standards) Rules, 2015, dated 16 February 2015) · IFRS Foundation