Calculate an impairment loss under IAS 36
Determine recoverable amount as the higher of value in use and fair value less disposal costs, then compare it with carrying amount.
Section 3.2 · Regulatory and ethical considerations
Cambridge International AS & A Level Accounting 9706, 2026–2028 syllabus, Version 2. These lessons cover the nine named IAS at the main-provisions level described in Cambridge teacher guidance, the stated ethical principles, audit and stewardship. Practice is self-checked, not an official Cambridge grade. Full timed Papers 1–4 and human subject-teacher review remain outstanding.
Before you begin
- Use the Topic 1.5 and 3.1 statement skills: identify the reporting period, distinguish profit from cash, and explain how a reporting choice affects users of financial statements.
Work on paper. Try each question before revealing help, and explain why your method works.
Quick readiness check
Fair value less disposal costs is $40,000 and value in use is $45,000. What is recoverable amount?
What you will learn
- Define carrying amount, recoverable amount and impairment loss
- Calculate recoverable amount from two measures
- Explain the statement effect when carrying amount exceeds recoverable amount
Do not carry an asset above the amount recoverable
IAS 36 aims to prevent an asset being carried above its recoverable amount. For the syllabus, recoverable amount is the higher of fair value less costs of disposal and value in use. Value in use is based on the present value of future cash flows expected from the asset; fair value less disposal costs reflects a sale measure less direct disposal costs.
If carrying amount is greater than recoverable amount, the difference is an impairment loss. Carry the asset at the recoverable amount after the loss. If recoverable amount is at least the carrying amount, there is no impairment loss from this comparison.
Explain the calculation and reporting effect
Calculate both possible recovery measures before choosing the higher one. A common error is to choose the lower amount or to subtract carrying value from one measure before comparing them. An impairment loss usually reduces the carrying amount and is recognised in profit or loss, subject to applicable treatment for a revalued asset.
Impairment is not the same as routine depreciation. Depreciation allocates depreciable cost across useful life; impairment responds when the carrying amount exceeds what can be recovered. Inventory follows IAS 2 rather than IAS 36 in the syllabus guidance.
Pause and explain
Carrying amount is $50,000 and recoverable amount is $47,000. What is the impairment loss?
Worked example
An asset has a carrying amount of $84,000, fair value less disposal costs of $61,000 and value in use of $72,500. Calculate recoverable amount and any impairment loss.
Show the worked solution
- Recoverable amount is the higher of $61,000 and $72,500, so it is $72,500.
- Compare carrying amount $84,000 with recoverable amount $72,500.
- Impairment loss = $84,000 − $72,500 = $11,500.
Answer Recoverable amount is $72,500 and the impairment loss is $11,500.
Try a topic test
Choose Easy, Normal or Difficult. Save your answers and open worked review after finishing.
Test this topic →From guided practice to a new situation
Write your answer and reasoning first. Use a hint only if you are stuck. The model solution is for self-checking; your written work is not automatically marked.
An asset carries at $30,000. Its value in use is $24,000 and fair value less disposal costs is $27,500. Calculate the recoverable amount and loss.
Give me a hint
Take the higher recovery measure first.
Compare my reasoning
- Recoverable amount = higher of $24,000 and $27,500 = $27,500.
- Carrying amount is $30,000, which is higher than $27,500.
- Impairment loss = $30,000 − $27,500 = $2,500.
Recoverable amount $27,500; impairment loss $2,500.
Look for these in your work
- Higher measure chosen
- Carrying amount compared
- Loss calculated
A machine has carrying amount $96,000. Expected future use supports value in use of $101,000, while fair value less disposal costs is $78,000. State the recoverable amount and whether to recognise an impairment from these figures.
Give me a hint
A positive difference between the two recovery measures does not itself mean there is impairment.
Compare my reasoning
- Recoverable amount is the higher amount, $101,000.
- Compare it with carrying amount $96,000.
- Recoverable amount is greater, so there is no impairment loss from this test.
Recoverable amount $101,000; no impairment loss is indicated by these figures.
Look for these in your work
- Higher measure used
- Comparison made
- No unsupported loss recorded
A manager chooses the lower of value in use and fair value less disposal costs because this gives a more cautious asset value. Explain why this is not the IAS 36 recoverable-amount calculation.
Give me a hint
Focus on the definition of amount recoverable, then calculate a hypothetical loss.
Compare my reasoning
- IAS 36 uses the higher of the two recovery measures, not the lower.
- The lower measure may understate the amount recoverable from use or sale.
- Compare carrying amount with the higher measure; recognize a loss only if carrying amount exceeds it.
The manager's method uses the wrong rule. Recoverable amount is the higher measure, and an impairment loss arises only for the excess of carrying amount over that recoverable amount.
Look for these in your work
- Definition corrected
- Reason explained
- Recognition condition stated
Common mistakes
- Taking the lower of value in use and fair value less disposal costs
- Charging an impairment when recoverable amount exceeds carrying amount
- Confusing depreciation with an impairment review
What can you explain now?
How is recoverable amount calculated in this syllabus context?
Compare with the explanation
The higher of fair value less costs of disposal and value in use
The higher recovery measure is used before comparing it with carrying amount.
After trying it yourself, choose your next review. This is your self-assessment.
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Make it stick
Write the formula for recoverable amount and the formula for an impairment loss.
If you needed the solution, close it and solve the problem again from a blank page. A correct answer is stronger when you can explain the reason for each step.