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How do you test for impairment of intangible assets?

How do you test for impairment of intangible assets?

The impairment test compares the carrying amount to the recoverable amount (defined above). If the carrying amount exceeds the recoverable amount, then an impairment loss is recorded. Tangible and finite-lived intangible assets are tested at the asset group level.

What should a long-lived asset be tested for recoverability?

As per ASC 360-10-35-21: a long-lived asset (asset group) should be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable.

Which intangible assets are subject to annual impairment testing?

An intangible asset with a finite useful life is amortised and is subject to impairment testing. An intangible asset with an indefinite useful life is not amortised, but is tested annually for impairment. When an intangible asset is disposed of, the gain or loss on disposal is included in profit or loss.

What is a recoverability test?

The recoverability test is based on the entity-specific, undiscounted cash flows expected to result from the entity’s use and eventual disposition of the asset group, rather than on market-participant assumptions that would be used in measuring the asset group’s fair value.

What assets are subject to impairment test?


  • buildings.
  • machinery and equipment.
  • investment property carried at cost.
  • intangible assets.
  • goodwill.
  • investments in subsidiaries, associates, and joint ventures carried at cost.
  • assets carried at revalued amounts under IAS 16 and IAS 38.
  • What assets should be tested for impairment?

    Certain assets, such as intangible goodwill, must be tested for impairment on an annual basis in order to ensure that the value of assets is not inflated on the balance sheet.

    Is intangible asset long-lived?

    Long-lived assets, also referred to as non-current assets or long-term assets, are assets that are expected to provide economic benefits over a future period of time, typically greater than one year. Long-lived assets may be tangible, intangible, or financial assets.

    Which asset should be tested for impairment first?

    Order of Impairment Testing Prior to testing goodwill for impairment, companies should first test other assets (e.g., accounts receivable, inventory) and indefinite-lived intangible assets, then long-lived assets (including definite-lived intangible assets), and finally, goodwill.

    What are the three major types of intangible assets?

    Intangible assets include patents, copyrights, and a company’s brand.

    When should assets be tested for impairment?

    Assets should be tested for impairment regularly to prevent overstatement on the balance sheet. Impairment exists when an asset’s fair value is less than its carrying value on the balance sheet. If impairment is confirmed as a result of testing, an impairment loss should be recorded.

    What is impairment of intangible assets?

    An indefinite-lived intangible asset is considered to be impaired when the asset’s carrying amount is greater than its fair value. There are various approaches to determine whether an impairment should be recognized and, if so, how to measure and record such impairment in the financial statements.