Measure the unit loss, then allocate it
For companies applying Ind AS, compare the cash-generating unit’s carrying amount with its recoverable amount on a consistent basis. Once an impairment loss is measured, paragraph 104 of Ind AS 36 allocates it first to goodwill assigned to the unit or group being tested, then proportionately to other assets based on their carrying amounts. Paragraph 105 caps the reduction of each other asset at the amount that leaves it at the highest of its measurable fair value less costs of disposal, determinable value in use and zero. Redistribute any amount blocked by a floor among the other eligible assets on a proportionate basis.
Read the applicable text: MCA: Ind AS 36, paragraphs 60–63, 97–98, 104–108 and 124.
Build a table that can be recalculated
For each eligible asset show its carrying amount immediately before allocation, valuation evidence supporting any floor, maximum absorbable loss and preliminary pro-rata share. Flag assets at the floor and recalculate the remainder for assets with capacity. Keep the allocation weights tied to the pre-allocation carrying amounts. Repeat until the remainder is absorbed or no further capacity exists. Do not divide a CGU valuation across assets and present the resulting numbers as individually determined value in use. Where a value cannot be determined or measured at asset level, document why and use the remaining supported floor inputs.
Check the perimeter before passing the journal
Confirm that assets, liabilities where relevant, recoverable amount and the goodwill being tested are on a consistent basis. When an asset is tested at the same time as its goodwill-bearing unit, test the asset first. When a smaller unit is tested at the same time as a group of units to which goodwill is allocated, test the smaller unit first; feed the updated carrying amount into the wider comparison. Under paragraph 108, recognise a liability for a residual impairment amount only if another Ind AS requires it. A residual should also prompt a check of valuation and perimeter assumptions rather than an automatic plug.
Make the loss traceable after close
Map the loss to each fixed-asset ID and to goodwill, and review the recognition route under paragraphs 60–61. A revalued asset can have a different recognition route from a cost-model asset. Update future depreciation or amortisation using the revised carrying amount and applicable residual value and useful life. Keep the allocation worksheet, valuations, resulting asset balances and reconciliation to the posting together.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Goodwill absorbs the entire loss
A unit carries ₹600 lakh, including goodwill of ₹100 lakh. Its recoverable amount is ₹520 lakh. The ₹80 lakh loss is allocated to goodwill, which closes at ₹20 lakh. The other assets receive no allocation.
Illustrative example 2: Goodwill exhausted before pro rata
Goodwill is ₹20 lakh and two machines carry ₹200 lakh and ₹100 lakh. Recoverable amount is ₹240 lakh, so the ₹80 lakh loss uses all goodwill and leaves ₹60 lakh. With no binding floors the machines receive ₹40 lakh and ₹20 lakh, closing at ₹160 lakh and ₹80 lakh.
Illustrative example 3: One floor binds
Assets of ₹120 lakh and ₹80 lakh have a unit recoverable amount of ₹150 lakh. The ₹50 lakh loss initially splits ₹30 lakh and ₹20 lakh. The first asset’s supported floor is ₹110 lakh, so it can absorb only ₹10 lakh. The second can absorb ₹40 lakh, leaving balances of ₹110 lakh and ₹40 lakh.
Illustrative example 4: Two floors bind in succession
Three assets carry ₹100 lakh, ₹60 lakh and ₹40 lakh; their floors are ₹90 lakh, ₹35 lakh and zero. A ₹70 lakh unit loss initially splits ₹35 lakh, ₹21 lakh and ₹14 lakh. Cap the first at ₹10 lakh and recompute: ₹60 lakh splits ₹36 lakh and ₹24 lakh. Cap the second at ₹25 lakh and give the third ₹35 lakh. Closing balances are ₹90 lakh, ₹35 lakh and ₹5 lakh.
Illustrative example 5: Use the higher supported floor
Two assets carry ₹100 lakh each. A has measurable fair value less costs of disposal of ₹92 lakh and determinable value in use of ₹80 lakh. B has corresponding values of ₹60 lakh and ₹70 lakh. Floors are ₹92 lakh and ₹70 lakh. A ₹30 lakh loss initially splits ₹15 lakh each. Cap A at ₹8 lakh and allocate ₹22 lakh to B; B closes at ₹78 lakh.
Illustrative example 6: Residual needs a separate assessment
Two assets carry ₹90 lakh and ₹60 lakh with supported floors of ₹80 lakh and ₹45 lakh. As a control test, assume a worksheet shows a ₹50 lakh loss before checking whether the inputs are consistent. The two assets can absorb ₹10 lakh and ₹15 lakh, leaving a ₹25 lakh worksheet difference. Before posting, investigate the valuation perimeter and basis of both floors and the unit recoverable amount. If a residual remains after a properly supported allocation under paragraphs 104–105, paragraph 108 permits recognition of a liability only if another Ind AS requires it.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm Ind AS applicability | Entity accounting framework and reporting perimeter. |
| 2 | Reconcile the CGU carrying amount | Asset register and reconciliation to the valuation perimeter. |
| 3 | Check earlier individual or smaller-unit tests | Sequencing memo and updated carrying amounts. |
| 4 | Confirm the CGU recoverable amount | Approved valuation and consistent asset and liability scope. |
| 5 | Match goodwill to the unit | Acquisition allocation and impairment working. |
| 6 | Compute the residual after goodwill | Reconciled calculation of loss left to allocate. |
| 7 | Support each asset floor | Valuation evidence and reasons for unavailable measures. |
| 8 | Reallocate any capped share | Pro-rata iterations, final allocation and floor checks. |
| 9 | Assess residual and recognition route | Paragraph 108 memo and revaluation surplus evidence where applicable. |
| 10 | Tie the posting to future depreciation | Approved journal, fixed asset updates and depreciation roll-forward. |
Sixteen practitioner FAQs
1. Can the loss be allocated directly to fixed assets while goodwill remains?
Paragraph 104 reduces allocated goodwill first.
2. What is the weight for allocation to other assets?
The asset’s carrying amount in the unit or group being tested, subject to the floor.
3. Is the floor the lower of the two valuation measures?
No. Use the highest of available measures and zero.
4. What if value in use cannot be determined for one asset?
Use a measurable fair value less costs of disposal if available and compare with zero; document why individual value in use is unavailable.
5. Does zero as a floor mean the asset was valued at zero?
No. Zero limits the allocation when neither measure supports a higher floor.
6. Can the remaining loss be left with the first asset after it hits its floor?
No. Allocate the blocked portion proportionately to other eligible assets, subject to their floors.
7. What if the redistribution brings a second asset to its floor?
Cap the second asset as well and recalculate the remaining allocation.
8. What if all other assets hit their floors?
Validate the inputs and consider paragraph 108 for any supported remainder.
9. Can a carrying amount rise because the floor exceeds it?
An impairment allocation does not write up the asset; a floor at or above carrying amount leaves no capacity.
10. Can I use depreciation expense as the allocation weight?
No. The allocation uses carrying amounts.
11. Does this apply to the original allocation or to later reversals?
This workflow is for allocating a measured impairment loss. Separate rules apply to reversals. In particular, paragraph 124 prohibits reversal of an impairment loss recognised for goodwill.
12. Is the complete loss always charged to profit or loss?
Check paragraphs 60–61 for revalued assets and the relevant other Standard.
13. Should a component already impaired in a required prior test be reset to its old carrying amount?
No. Use the updated carrying amount in the wider test.
14. How do I review future depreciation?
Recompute prospectively from the revised carrying amount, residual value and remaining useful life as applicable.
15. Does a spreadsheet residual itself justify a provision?
No. Paragraph 108 requires another Ind AS to require a liability.
16. Which equality should the reviewer test?
Measured loss equals loss assigned to goodwill and other assets plus any amount separately analysed under paragraph 108.