Impairment of asset occur when net book value of asset is GREATER than market value of asset or value in use whatever is greater. guidelines for how to account for impairment is given in IAS 36.
The following are substantive procedures for impairment and depreciation of tangible non current asset:
Review fixed asset register to ensure:
- depreciation has been charged on all depreciable fixed assets
- depreciation on additions starts when asset is available for use
- fully depreciated assets are separately identifiable and no depreciation is charged on such assets
check whether residual value, useful life / depreciation rate and depreciation method are:
- reasonable (considering nature of asset, and
- consistent with last year and industry practices
recalculate depreciation expense (using analytical procedures ) and compare with actual expenses to ensure reasonableness of depreciation expenses.
check whether the allocation of depreciation expenses between manufacturing and operating expenses is on reasonable basis
review gains or losses on disposal as indication of understatement or overstatement of depreciation expenses (if depreciation is reasonable there should not be significant gain or loss)