CIRD30550 - Intangible assets: notes on accounting practice: impairment

General

Impairment is defined in FRS11 as a reduction in the recoverable amount of a fixed asset or goodwill below its carrying amount.

An impairment review should be carried out:

• after acquisition at the end of the first full financial year following the acquisition (‘first year review’ - see below),
• in other periods if events or changes in circumstances occur which indicate that the carrying values may not be recoverable. If goodwill or other assets are not being amortised over a twenty-year or lesser period, then they should be reviewed for impairment at the end of each reporting period. After the first period it is only necessary to update the reviews, rather than carry them out afresh.

Impairment loss

If an impairment loss is recognised, the revised carrying value, if being amortised, should be amortised over the current estimate of the remaining useful economic life.

Impairment Review at end of First Year

Details of how an impairment review is to be carried out are at CIRD30555. These apply except for the end of the first year review. This review can be carried out in two stages. The first stage compares post-acquisition performance with pre-acquisition forecasts used to support the purchase price. Only if the performance has failed to meet expectations as shown in the initial review (or in the event of other unforeseen impairments) is the full impairment review (the second stage) in accordance with FRS11 required.