Identify the asset before testing recoverability
Ind AS 115 paragraphs 101–104 apply to assets recognised under paragraphs 91 or 95 for qualifying costs of obtaining or fulfilling a contract. They are distinct from a contract asset, which paragraphs 105 and 107 address when a right to consideration for a transfer is conditional on something besides the passage of time. Start with the carrying amount after applicable amortisation and identify the goods or services to which the cost asset relates.
Read the applicable text: MCA: Ind AS 115, paragraphs 91–107.
Use expected remaining consideration and unexpensed direct costs
Under paragraph 101, compare the carrying amount with the expected remaining consideration for the related goods or services less the direct costs of providing them that have not been expensed. Recognise any excess of the carrying amount over that result as an impairment loss in profit or loss. Under paragraph 102 use the transaction-price principles with the stated exception for the variable consideration constraint in paragraphs 56–58, and adjust for customer credit risk. A full invoice balance or original contract price is not the starting amount by default.
Apply the required sequence
Paragraph 103 first requires recognition of impairments on related assets accounted for under other standards, such as inventories or PPE, as applicable. Apply the paragraph 101 test to the contract cost asset, then include its resulting carrying amount in its cash-generating unit for the Ind AS 36 test. Maintain separate calculations and avoid recording the same adjustment twice.
Revisit the test when facts improve
Paragraph 104 requires reversal of some or all of a previous impairment in profit or loss if the conditions that caused it no longer exist or have improved, subject to the ceiling of the carrying amount net of amortisation that would exist without the earlier impairment. Maintain a parallel schedule for that ceiling. These examples assume supported amounts, one cost asset unless stated and no additional adjustment outside the stated facts.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Basic impairment
Carrying amount is ₹32 lakh. Expected remaining consideration is ₹80 lakh and unexpensed direct costs ₹57 lakh. The test amount is ₹23 lakh, so recognise ₹9 lakh impairment.
Illustrative example 2: Credit risk changes the result
The carrying amount is ₹24 lakh. Remaining consideration before the credit-risk effect is ₹65 lakh, adjusted down by ₹7 lakh. With ₹40 lakh unexpensed direct costs, the test amount is ₹18 lakh and impairment ₹6 lakh.
Illustrative example 3: Exclude costs already expensed
Expected consideration is ₹90 lakh; ₹48 lakh of directly related costs remains unexpensed and ₹15 lakh has already been expensed. The test amount is ₹42 lakh. With carrying amount of ₹44 lakh, impairment is ₹2 lakh, not ₹17 lakh.
Illustrative example 4: No impairment despite a smaller contract margin
Carrying amount is ₹17 lakh, expected remaining consideration ₹55 lakh and unexpensed direct costs ₹35 lakh. The test amount is ₹20 lakh, leaving ₹3 lakh headroom under paragraph 101.
Illustrative example 5: Apply the reversal ceiling
After earlier impairment and amortisation, carrying amount is ₹12 lakh. Improved conditions support ₹24 lakh, but the carrying amount net of amortisation absent impairment would be ₹19 lakh. Reverse ₹7 lakh in profit or loss, raising the carrying amount to ₹19 lakh.
Illustrative example 6: Sequence the tests
Related inventory falls from ₹20 lakh to ₹16 lakh under its applicable test. Separately, a contract cost asset of ₹18 lakh has a supported paragraph 101 test amount of ₹13 lakh. The two losses are ₹4 lakh and ₹5 lakh; the contract cost asset enters its cash-generating unit working at ₹13 lakh before the separate test.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm the cost asset’s recognition route | Contract and paragraphs 91 or 95 assessment |
| 2 | Identify related goods and services | Contract cost-to-performance linkage |
| 3 | Reconcile carrying amount after amortisation | Cost asset roll-forward |
| 4 | Test related assets under other standards first | Inventory, PPE or other asset assessments |
| 5 | Estimate remaining consideration | Updated contractual forecast |
| 6 | Apply the paragraph 102 adjustments | Credit-risk and transaction-price working |
| 7 | Identify unexpensed directly related costs | Cost ledger and forecast reconciliation |
| 8 | Measure impairment and update the unit working | Paragraphs 101 and 103 calculations |
| 9 | Maintain the no-impairment amortised ceiling | Parallel cost asset schedule |
| 10 | Record the supported loss or reversal and review | Entries, evidence and sign-off |
Sixteen practitioner FAQs
1. Is this asset the same as the contract asset for revenue?
No. This test concerns assets recognised for qualifying costs under paragraphs 91 or 95.
2. Does the full original contract price enter the test?
Use expected remaining consideration for the related goods or services.
3. Should costs already expensed reduce the test amount again?
No. Identify directly related costs not already expensed.
4. Does credit risk affect the expected amount?
Yes. Paragraph 102 requires adjustment for customer credit risk.
5. Does the variable consideration constraint apply unchanged?
Paragraph 102 expressly excepts the requirements in paragraphs 56–58 from this calculation.
6. Can a forecast use costs unrelated to the goods or services?
Apply the direct relationship requirement and support the allocation.
7. Should an inventory write-down be assessed first?
Yes. Paragraph 103 requires applicable impairment of related assets under other standards first.
8. Does the cost asset disappear from the unit after paragraph 101?
Include its resulting carrying amount in the relevant cash-generating unit for the separate test.
9. Can an increased expected balance justify reversal?
Reassess whether the impairment conditions improved or no longer exist.
10. Where is a paragraph 104 reversal recognised?
In profit or loss.
11. Can the reversal restore the original unamortised cost?
No. The ceiling is the carrying amount net of amortisation absent the prior impairment.
12. Can billing alone justify a reversal?
Assess the supported economics and applicable conditions.
13. Is an impairment charge a substitute for amortisation?
No. Maintain the applicable amortisation working separately.
14. How should shared costs be evidenced?
Use support for direct relation to the relevant goods or services and the allocation.
15. Can a separate onerous-contract assessment be skipped?
Assess other requirements independently and avoid duplication.
16. What makes the file reproducible?
Show the asset, remaining consideration, credit adjustment, cost population, sequence and reversal ceiling.